Inflation Inoculation, Fubo Fights For Flight & EA’s Dark Arts
Wake Up Wall Street
Great Ones, I knew this was coming. Heck, we all knew this was coming. So … why didn’t Wall Street?
Obviously, I’m talking about the latest round of inflation data. The Consumer Price Index (CPI) surged 4.2% in April, per the U.S. Labor Department. It was the fastest year-over-year rate of change in more than 12 years.
We knew it was coming. We knew U.S. economic demand was outstripping supply. We knew about U.S. economic stimulus … that there are serious bottlenecks limiting production … that energy demands are soaring with people on the move once again.
We knew that semiconductors, apparently the new lifeblood of the global economy, were in extremely short supply.
We’ve known about these things for months … and yet, Wall Street economists were still caught with their pants down — expecting just a 3.6% rise.
States are fully reopening and dropping COVID-19 restrictions faster than global supply lines can keep up … for now. But this demand-side economic pressure will eventually relent as businesses and supply lines catch up.
In other words, this bump in inflationary pressure is temporary … or “transitory,” as Federal Reserve members like to say. To put it another way: This, too, shall pass.
But what if it doesn’t, Mr. Great Stuff! The mainstream media keeps telling me everyone is worried about sustained sky-high inflation!
Let me ask you this: If the economy is truly recovering, why is everyone worried about long-term inflation?
Government stimulus and unemployment benefits? Those will only last so long, and there’s no way another round is going to pass Congress. Mark me on this one: Another round of stimulus isn’t coming.
Limited material supplies? The only way shortages will last is if businesses themselves don’t rise to meet demand. Yet, we already know they’re rising to the occasion … albeit cautiously, due to lingering COVID-19 fears.
And here, we hit on the real boogeyman: COVID-19.
All things being equal, we’re seeing exactly what the Federal Reserve says we’re seeing: a transitory bump in inflationary pressures exacerbated by extremely poor year-over-year comparisons.
For example, if you have “nothing” and get just one of “something,” that’s a 100% increase. Economic growth in 2020 was nonexistent, so any growth this year will look massive.
If we’re truly in an economic recovery — and COVID-19 is no longer the gorilla in the room — we have nothing to worry about. Supply will catch up to demand, and everything will even out. Inflation concerns will evaporate, and you’ll be rewarded for staying strong in your investments.
On the other hand, if we’re not in a true economic recovery, and this growth is all smoke and mirrors fueled by premature reopenings and massive stimulus spending … well, then inflation won’t be a concern there either. Demand will decline as reopenings are reversed (again), and stimulus will dry up, taking inflation and economic growth with it.
In fact, the only way we’d see the sustained long-term inflation that Wall Street is supposedly worried about is if economic growth continues at its breakneck pace and businesses (for whatever reason) don’t invest enough in supply lines and materials to keep pace with demand. (Or if they don’t secure their supply chains from would-be attackers … I’m looking at you, Colonial Pipeline.)
I hate to say it, but I’m siding with the Fed on this one. As all good investors know, you don’t fight the Fed.
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The Good: Put Me In, Coach!
Like Alice’s Restaurant, you can get anything you want in the streaming market … excepting live sports (and Alice, naturally).
We can already stream first-run movies, TV shows, reality TV, sitcoms, dramas, made-for-TV movies, old sports games … you name it.
But live sports? That’s streaming’s final frontier.
But FuboTV (NYSE: FUBO) is going where no man has gone before … sort of. Others, like Amazon Prime Video, have struck deals for seasonal live sports content. But no streaming service yet has tried to be the one-stop shop for live sports until Fubo — and it’s paying off big.
This morning, FuboTV reported a narrower loss, rapidly rising revenue and strong subscriber growth. Want the numbers? FuboTV lost a lower-than-expected $0.59 per share, and revenue grew more than expected to $119.7 million with 590,000 subscribers.
But FuboTV’s real home run was guidance. It expects revenue to land between $520 million and $530 million for 2021 while ending the year with 850,000 subscribers. It’s not Disney+ levels of growth, but it’d make HBO Max jealous, that’s for certain.
The real question here is: Should you buy FUBO now?
Well, with the stock surging more than 8% today, probably not. But FUBO bulls should be in the on-deck circle if they aren’t already in the game. Today’s rally will fade.
Those interested in the leading live sports streamer should consider buying in the $17.50 to $19 range. The former level is home to FUBO’s pre-earnings gap levels, while the latter is long-term price support/resistance.
Personally, I’m still a bit hesitant to pull the trigger on FUBO. The company is going up against some real heavy hitters that could sign their own live sports deals. That’s my only real caveat for FUBO right now.
The Bad: Unlock This Section For Only $0.99!
With streaming, what’s good for the end-user is typically good for the investor. FuboTV fills a gap in the market by offering sports streaming, people are happy — it makes money. Rinse and repeat.
Video game investing, by contrast, is a different matter entirely. With big-name publicly traded behemoths like Electronic Arts (Nasdaq: EA), what’s bad for the gamer … is often quite good for the investor.
And it kills me to say this, but EA’s willingness to milk every last cent from its gamers simply prints money for investors.
Loot boxes and microtransactions are the banes of my gaming existence, but from an investing standpoint, EA’s cash cows are its veritable golden goose of recurring revenues and farm animal analogies.
Most quarters, this is usually enough to quench the Street’s thirst for ever-increasing profits. EA didn’t get so lucky this time, though. Revenue fell to $1.35 billion and missed estimates for $1.4 billion. Per-share earnings only totaled $0.26, while analysts expected $0.60 per share. Money printer must be out of cyan.
Word on the Street is that the reopening is bad news bears for videogame makers like EA that saw massive game sales earlier in the pandemic — predicting that even locked-at-home gamers are ready to stretch outside in the sunshine for a bit.
But, these analysts don’t know gamers. EA will lose some casuals here and there, but I guarantee that the pandemic lockdowns minted some new gamer junkies. Welcome to the club.
As an investor, EA’s quarterly report is mildly disconcerting, but nothing to get worried about long term.
As a gamer and an investor, I guess I’m holding my nose and calling EA’s post-earnings drop a buying opportunity. Gaaah! Now I need to go wash up … I feel dirty.
The Ugly: A Quantum Scapegoat
One of these days, QuantumScape (NYSE: QS) will fit into a section other than “ugly.” But what do we say to QuantumScape? Not today!
In rosier pre-pandemic times, QuantumScape’s pre-revenue “someday we’ll be a real battery maker!” lip service might’ve charmed some investors.
But in today’s climate, nobody’s taking a chance on a speculative battery stock with mounting losses and no real product.
And why should we? QuantumScape keeps chugging away at developing solid-state batteries that continue to be just not ready yet for mass production.
With another quarter’s close comes another disappointing report for the Street.
The company’s per-share loss more than tripled year over year to $0.20, while analysts hoped for a milder $0.07 loss per share. Revenue? Lol. Don’t even ask…
QS also expects to spend more cash this year than previously predicted, up between $260 million and $320 million as it works to develop another battery product line. It’s meeting these development milestones that keeps Volkswagen’s cash-happy lifeline flowing, but if it weren’t for VW’s desperation for an edge in the electric vehicle market … we probably wouldn’t even be talking about QS right now.
By the way, if you’re curious about the batteries that QS has been working on since forever, oh, management will be ecstatic to tell you all about it. That futuristic carrot-and-stick game is all QuantumScape can play right now. Almost like QuantumScape’s desperately trying to divert attention:
Did you check out our battery update? Please, sir, it’ll be the best solid-state tech you’ll ever see! Hey, look at how thin we got these batteries!
Honestly, by the time QuantumScape has a product on the market — and not just on the drawing board — competitors will have caught up. Well, that or hydrogen power will be much more prominent … and by then, QuantumScape’s batteries will be late to an already-dead party.
Sorry not sorry, I’m not jazzed about anything to do with QS. But what about you? Are you invested in QuantumScape — and why? Hit me up in the inbox: GreatStuffToday@BanyanHill.com.
Oh, and if you’re looking for battery tech, that’s actually, I don’t know, legit … we’ve got you covered. Click here to learn more!
Welcome to poll day, Great Ones! It’s that time of the week when we hand you the mic to sound off on the day’s hot-button issues … until tomorrow’s edition of Reader Feedback, that is.
In last week’s poll, we wanted to hear from all you Zillow-ers out there, Zillowing amid what Zillow calls the Great Reshuffling. In other words … do y’all use Zillow? The house-hunting website?
Only about 11.1% of you claimed to have used Zillow to move, while another 80.6% are mainly there to window shop through someone else’s window.
Also, thanks to the 8.3% of you out there in the analog world still using classified ad spots — I knew there’d be a few of y’all in digital denial. Good job supporting your local newspapers … or something.
Speaking of denial, I guess we should talk about inflation again. I know, I’m getting tired of ranting on and on about inflation, but Wall Street still seems surprised by the obvious, so here we are. ¯\_(ツ)_/¯
You’ve already heard my piece on inflation — that either the Great Recovery falls flat on its face and demand plummets … or companies address their production issues and supply catches up with demand.
But I know some of you might still get caught up in Wall Street’s inflationary anxiety attack, so I gotta check on all y’all Great Ones out there at times like these. How about you click below and let me know:
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By the way, if you’ve got more to share, by all means — send a message my way! Ramble and rant away to GreatStuffToday@BanyanHill.com.
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Until next time, stay Great!
Editor, Great Stuff