Tremendous

An angel investor's take on life and business

  • Tesla’s Shares Are Priced For a Future Where Tesla Makes Every Car on Earth

    Reading about the enormous run-up in shares of Tesla, Inc., I wondered something…is Tesla bigger than the entire rest of the auto industry?

    The answer is: almost. Tesla’s market cap ($655 billion), is nearly equal to the combined market caps of Toyota, GM, Ford, VW, Daimler, Fiat, BMW, Honda, Hyundai, Nissan, Mazda, Subaru and Aston Martin ($750 billion), per Yahoo Finance data. That’s pretty much the auto industry, with the notable exception of SAIC of China.

    So, will Tesla make every car on earth? Probably not. Indeed, what scenario investors are expecting is unclear:

    It doesn’t make sense that nearly all the cars sold in the world in the future will be Tesla vehicles, nor does it make sense that the size of the global auto market will double.

    Therefore, Tesla’s massive market cap compared to the largest legacy auto companies in the world seems to suggest that investors believe other businesses outside of pure auto unit sales will play an extremely large role in Tesla’s future business model.

    Tesla has come out with some interesting non-auto products like its solar roof tiles and Power Wall, but does that make it worth three times as much as Toyota, the next largest auto company by market cap ($213 billion)?

    Keep in mind, Toyota sold almost 10 million vehicles last year. That’s nearly 20 times as many as Tesla.

    I’m a huge fan of Tesla and Elon Musk. I think it’s an amazing company and Musk is one of the greatest innovators and entrepreneurs of all time. But, it’s hard to justify the stock’s current level.

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    Photo: “Tesla Chairman Elon Musk” by kqedquest is licensed under CC BY-NC 2.0

  • Palantir Insiders Are Dumping The Stock. What Do They Know That You Don’t?

    The lock-up that stopped insiders at Palantir Technologies from selling their shares recently expired. And boy, are they excited!

    Palantir stock sank as much as 13% on Tuesday after regulatory filings showed the company’s co-founder Stephen Cohen and two other top executives offloaded 2.7 million shares.

    And they’re not the only ones:

    Just a month after Palantir went public last year, CEO Alex Karp and co-found Peter Thiel sold a combined 41.45 million shares, for more than $400 million.

    These sales go way beyond what it would take to have financial security or fund most any lifestyle. To me, it suggests that they think the company has gone about as far as it’s going to and it’s time to cash out.

    In a company destined for greatness, you would expect to see the insiders holding onto their shares. They wouldn’t want to miss out on the amazing times ahead!

    But that’s not the case here. I agree with them. Palantir is overvalued with a questionable business model and should be making money by now, 18 years since its founding. But it’s never made a dime.

    The picture isn’t all bleak: a certain number of insiders are buying. But seeing these huge sales by the founders and top executives would definitely give me pause.

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

  • SPACs Are a Bubble and Nikola’s Fake Truck Is Proof

    So Tesla is doing great, right? And I sure would love to make as much money as Elon Musk! So let’s make our own vehicle startup.

    What should we call it? Hmm, picking a name is hard. Let’s just go with Tesla’s first name, Nikola!

    Now we have to make a truck. But making the whole engine thingy is a pain! How about we just let it roll down a hill, take a video and raise lots of money? Yay!

    Believe it or not, this is exactly what Nikola, the electric truck startup, did. And they even admitted it…once they were caught. But hey, they didn’t technically lie:

    Nikola described this third-party video on the Company’s social media as ‘In Motion.’ It was never described as ‘under its own propulsion’ or ‘powertrain driven’.

    How is this company with no real product even public? That’s where Special Purpose Acquisition Companies, or SPACs, come in. A SPAC raises money from investors to buy a private company to acquire. They’re exploding in popularity:

    Amid the global stock market volatility, last year’s $83 billion haul by SPACs was six times the amount raised in 2019 and nearly equaled the figure mustered by IPOs.

    Nikola went public via a merger with a SPAC in March of 2020. Just a few months later, it wound up under a federal investigation for securities fraud. Its stock is down from a high of over 60 to barely 20.

    What made this SPAC want to acquire such a questionable company? SPACs collect a big fee if they acquire a company, but if they don’t acquire anything, there’s no fee. This gives the people who created it (“sponsors”) a strong incentive to acquire anything, regardless of merit:

    More than 300 SPACs need to pull that off this year or risk being liquidated. But with only so many quality targets to go round, and SPAC founders’ strong incentive to close deals — even at the expense of shareholder value — SPACs may well end up in a negative spiral of poor quality/bad press/tighter regulation.

    Since so many new SPACs are being created, and there are only so many quality private companies to go around, they’re getting less and less picky:

    Then there is the fact that many firms taken public by SPACs have little to show in terms of business plan or revenue, in some cases triggering shareholder lawsuits by disgruntled investors.

    Typically, a company with no profits isn’t a good candidate to go public. A company with no revenue is even more suspect. Maybe that’s why they’re not going the traditional IPO route.

    Indeed, research on a large pool of SPACs and normal IPOs (127 SPACs and 1128 IPOs) show that the SPACs do much worse:

    SPAC firms are associated with severe underperformance in comparison to the market

    If they have such a well-documented record of underperformance, why are SPACs so popular? My hunch is it has to do with the fees for the sponsors, which are often several times greater than for a traditional IPO. That’s peachy for the sponsors, but I think investors are better served by avoiding all but the strongest SPAC deals. You’ll probably just wind up paying too many fees and buying an inferior company.

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    Photo: “Nikola Two Semi Truck” by 666isMONEY ☮ ♥ & ☠ is licensed under CC BY 2.0

  • I Got The Moderna Vaccine! Here’s What It’s Like.

    At 1:48pm today New Jersey time, I got my vaccine!

    I’ve been waiting for this moment for many months, and I’m so grateful to have a chance to get it. It was the Moderna vaccine and I got it through the Hudson County vaccination site. So far, I feel 100%!

    Having lived through the dark period of spring 2020 in the New York City area, when sirens were almost constant and my neighbors were dying in huge numbers, reaching this moment is cathartic. It prompted a lot of feelings for me: relief, gratitude, and hope!

    So, what’s it like? This is a drive through site, and I don’t own a car, so I took an Uber. The driver very patiently waited with me in the lengthy line to get the jab. Many cars slowly snaked ahead in the cold snow.

    Once we finally made it to the front, I showed a QR code on my phone that the county had e-mailed me. Shortly therafter, the nurse came up and asked if I had been feeling sick today. Then, she gave me the shot!

    I barely felt a thing, which was surprising. Since then, I’ve had no side effects that I can discern. I hope it stays that way!

    Just after the shot, we took the picture above. It’s actually staged…she had already given me the jab before we ever thought to document the moment for posterity! So she posed with the needle near my arm, and I took a snap to record this wonderful moment in my life that I’ve waited so long for.

    “This is a historic moment,” she said. I agreed.

    If you’re still trying to get an appointment, don’t give up! I’ve been checking every area provider’s website repeatedly for months. And I almost wasn’t going to check again today, but I did, and found an appointment for just 90 minutes away! Perhaps someone cancelled last minute. The best strategy seems to be to check over and over.

    Now, I can begin to plan for a life after COVID. A week after the 2nd dose, which will be around the end of March, it should have achieved its full 94% efficacy. I will finally be able to get on a plane and visit my mom for the first time since December 2019! And I’m looking forward to getting some great protection even sooner: just 2 weeks after the first dose, the vaccine is 80% effective.

    I really encourage everyone to get this vaccine, although I know each person has to make their own decision. COVID may be something to fear, but this really isn’t! If I didn’t keel over after, you won’t either! 🙂

  • How to Build a Network, from Bumble Founder Whitney Wolfe Herd

    The dating app Bumble recently went public, making founder and CEO Whitney Wolfe Herd a billionaire at the ripe old age of 31. I heard an interview with Herd a while back, and her genius at marketing really struck me.

    She had just created Bumble…now, how can she get anyone to sign up?

    …we ran as fast as we could to the fraternity row, and went into the frat houses and said a different pitch, and said, “Hey guys, I bet you have no other way to access hundreds of sorority girls right now. Download the app, because they’re all waiting for you! They’ve all just downloaded this app and they’re all waiting for you to like them.

    This is incredible marketing genius, even if it involves a little white lie. Hurry boys, and you can have all the ladies to yourself! (What man will say no to that?) Quickly girls, the most desirable boys are waiting for you! With 2 meetings, she solved the problem of how to get enough people on the app to make it a real network.

    This interview is truly a master class in marketing and worth a listen in its entirety. The quote above is from about the 10:10 mark.

    I only wish I had been in on that IPO!

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    Photo: “File:TechCrunch Disrupt San Francisco 2018 – day 2 (30647055838).jpg” by TechCrunch is licensed under CC BY 2.0

  • Texas Failed to Prepare Its Energy System for a Deep Freeze

    As many in Texas enter a fifth day without power in freezing temperatures, I searched for information on how such a disaster could’ve happened.

    I came upon some excellent perspective from Professor Daniel Cohan at Rice University:

    See the entire Twitter thread here. Very much worth reading.

    Not preparing the full energy system, from natural gas wells to the electrical grid, for a deep freeze seems to be the culprit.

    This makes sense to me as someone who has lived his entire life in the frozen North…northern Maine, Wisconsin, and New Jersey. We’ve had storms and cold even worse than what Texas is experiencing on a regular basis, but I don’t recall the power ever going out. And I’m very grateful for that as I type this in my warm living room.

    To me, this calls into serious question the Texas regulatory model, where ERCOT regulates a Texas-only grid that’s exempt from Federal oversight. If they can’t plan for extreme events, why do they exist?

    In the mean time, as families resort to making little fires in their homes to stay warm, perhaps Governor Abbott can help. If the Governor’s Mansion has power, why not invite people to come there and warm up? Even a small gesture like that could bring warmth to a few people.

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    Photo: “Caricature: Texas Governor Greg Abbott” by DonkeyHotey is licensed under CC BY-SA 2.0

  • Payment for Order Flow Really Does Help Investors, Research Indicates

    Citadel CEO Ken Griffin claims that even though they pay Robinhood to execute their trades, investors are getting a better deal than they would in public stock markets:

    Citadel CEO Ken Griffin said Thursday that the system has been “very important to the democratization of finance. It has allowed the American retail investor to have the lowest execution cost they’ve ever had.”

    Sounds hard to believe, right? I’m naturally skeptical they’re giving those small investors a worse price and keeping the difference. However, one of the few recent studies to analyze payment for order flow (PFOF) finds the opposite:

    Focusing solely on execution prices, we find that the cost of liquidity on exchanges utilizing the PFOF model is 80 bps higher than on exchanges utilizing maker-taker pricing. Nevertheless, when taker fees are incorporated into the analysis, the cost of liquidity on the PFOF exchanges is 74 bps lower.

    More here.

    In other words, the prices the PFOF model gave investors were a bit worse, but when you consider the commissions they would’ve paid otherwise, they came out ahead. This study was limited to options, not stocks, but many Robinhood users trade options as well.

    On the other hand, Citadel has been fined before for offering worse prices than public markets. Until we see a comprehensive data set on Citadel-completed trades versus comparable ones on public markets, this will remain a difficult question to answer. I know of no such data currently available to the public.

    If Robinhood or Citadel came out with something like that, I think it would go a long way toward allaying the concerns of investors and regulators.

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    Photo: Citadel CEO Ken Griffin. “Ken Griffin with computers” by insider_monkey is licensed under CC BY-ND 2.0

  • Palantir Is Losing $100 Million a Month With No End in Sight

    Reddit’s Wallstreetbets loves Palantir Technologies, a Denver-based maker of data analytics software. The merry band of traders mention it more than any other stock, but the company has serious problems.

    Big Losses

    Palantir claims to make products that analyze data better than anyone else. If that’s true, why has the company never made a profit in 18 years?

    “They’re massively unprofitable and they’ve never been able to figure it out,” [NYU Business Professor Scott] Galloway said, noting that it took Google three years to earn a profit, and Amazon seven.

    Defense News

    Revenue is increasing but losses are increasing much faster, as sales/marketing and general/administrative expenses explode. I don’t see how signing a few more government contracts is going to get them out of this.

    In fact, Palantir spends more on sales and marketing than it does on R&D, per their latest quarterly report. This seems strange for a company whose whole value proposition is some technical “secret sauce”. Its sales and marketing expenses are massive, over half a billion dollars in just 9 months. Where is all this money going?

    One clue from their latest quarterly filing:

    we typically acquire new opportunities with minimal risk to our customers through short-term pilot deployments of our software platforms at no or low cost to them.

    They provide costly free trials to customers, and that seems to be killing their financial results. But if that’s what customers are used to, can they move to another, more profitable model? That could be particularly difficult for a company that’s dependent on winning more and more business from the same group of customers. They’ve probably come to expect their free trial.

    Dependent on Fundraising

    Palantir claims to be a data analytics company but acts more like a fundraising machine. It has lost $3.8 billion and raised $3 billion, cumulatively. It’s also taken on debt to stem the bleeding.

    You see this pattern very clearly in their 2020 report. They lose $1 billion in cash, issue $900 million in stock, and pile on $200 million in debt for good measure.

    They have under $2 billion in the bank now and lost $1 billion in 9 months. Without new fundraising, that gives them 18 months until they’re broke. Maybe they can easily raise more funds. Maybe they can’t. Either way, a mature company should not be in such a precarious position.

    I’m harping on the losses because this is not a new company beginning to build technologies and starting to scale. This is a mature business. It should be making money by now. Amazon and Google were well known for accepting some losses early in order to build and scale their business, but were still able to make a profit in just a few years.

    What, Me Worry?

    Another major risk is that their business is heavily concentrated in a few big government clients. If they lose one of those contracts, they could be in big trouble:

    three clients — which Palantir did not name — accounted for almost a third of revenues.

    Defense News

    CEO Alex Karp doesn’t seem concerned, though. Maybe he’s too busy enjoying his $600,000 travel stipend to go…where exactly?

    For more content on the Wallstreetbets phenomenon, try some of these:

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

  • When The Cat Who Supported Her Through Cancer Got Sick, Jessica Knew What She Had to Do

    Jessica had battled a brain tumor for a decade and was finally feeling better. Her little cat Olive had stood by her throughout her treatment, and now they were relaxing together at their house in Harlem.

    One weekend, Jessica couldn’t find Olive anywhere. She went down to the basement and heard faint meowing from the corner. Olive was very sick.

    Jessica grabbed Olive and rushed for a taxi. Together, they headed to the Animal Medical Center (AMC) on New York City’s Upper East Side.

    Dr. Kate Crecraft of AMC found that Olive had an extremely rare condition: a piece of grass had lodged itself in the sack around her heart (the pericardium). This was causing enormous fluid buildup and a life threatening infection.

    Surgeons removed the blade of grass and treated the infection. After some TLC at home from her mom Jessica, Olive is feeling as good as ever!

    Jessica finally had the chance to repay the friend who stood by her through her own illness. Now they’re together, healthy, and happy.

    I found out about this story in a wonderful letter I received from AMC today. I know firsthand the good work they do; they saved my pet gerbil’s life multiple times. I wouldn’t want to take a pet anywhere else.

    AMC is a marvel. There are departments of hematology, radiology, neurosurgery, everything the best human hospitals would have! But it all costs money, and as a nonprofit, AMC needs support from people like us.

    If you want to be a part of incredible stories like this, please donate here.

    How we treat these little animals says everything about us. Let’s enable more Olives to get well! When we heal them, we also heal the humans who love them.

  • The Miracle Particles Behind COVID Vaccines

    The particles that the Pfizer and Moderna vaccines rely on are 1/1000th the width of a human hair. They’re called lipid nanoparticles, and they’re revolutionizing medicine as we speak.

    The Pfizer and Moderna COVID vaccines work by sending mRNA to your cells. The mRNA tells the cells how to make proteins that block the virus. But you can’t send the mRNA on its own, because it would be repelled and flushed out through the kidneys.

    The mRNA needs a wrapper, and that’s where the lipid nanoparticle comes in. The mRNA molecules are negatively charged and so are our cells. These two negatives push each other away. But, the nanoparticle can make it inside the cell.

    Once inside the cell, the particle faces another barrier. The cell wraps it in a container called an endosome, because the cell doesn’t want to be contaminated. So, the lipid nanoparticle has to be specially designed to escape that endosomal prison.

    Decades of research has gone into these particles, and they can now escape and spread the necessary information into the watery substance inside the cell (called the cytoplasm). Our commitment to funding basic science decades ago is paying off today in ways we could never have anticipated.

    I learned a great deal about these incredible particles today at an online seminar hosted by the journal Nature with Kathryn Whitehead of Carnegie Mellon University and Yizhou Dong of Ohio State University. They gave some great perspective on the development of this amazing technology.

    One thing Professor Whitehead mentioned was that despite concerns that the mRNA vaccines are too new and unproven to be safe, the lipid nanoparticles they use have existed for decades. In fact, she said she’s had research rejected for publication because these particles are considered too old hat!

    I also finally learned why the vaccines have to be stored at such cold temperatures: molecules will start moving around too much once the temperature rises, so the lipid nanoparticles could come apart. Perhaps one reason Moderna’s vaccine doesn’t need quite as cold of storage is that they’ve been researching these particles for much longer than Pfizer/BioNTech, so their particles may be a bit more stable.

    Beyond COVID, lipid nanoparticles and the mRNA therapies they’re a part of could be used for other viruses like the flu, Zika and Ebola. They may also be used as cancer immunotherapies. (This echoes what the co-founders of BioNTech said recently.)

    These particles seem likely to underlie an entire new generation of medicines. I’ll be keeping a close eye on them, microscopic as they are!

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    Photo: “2020_06_020100 – a human cell attacked by Covid-19” by Gwydion M. Williams is licensed under CC BY 2.0