IPO Fever: The Best New Public Offerings
In today’s Market Talk, Amber Lancaster, Ian Dyer and I discuss:
- Uber’s upcoming initial public offering (IPO), and its new branch into India’s short-distance commute market.
- How consumers feel about the U.S. economy.
- My take on why Berkshire Hathaway CEO Warren Buffett is wrong about Tesla, and what his new embrace of tech companies tells us.
May 6, 2019
Amber Lancaster: Welcome to this week’s Market Talk. I’m Amber Lancaster, joined by Paul Mampilly and Ian Dyer. Each week we look forward to sharing our viewpoints with you, our readers, and giving insight into what’s on our radar.
Today’s outlook is for the week of May 6, 2019. I’ll begin by sharing with you what I’m watching and then we’ll hear from Ian and Paul. Today I’ll cover three topics. The first will be my take on U.S. economic data and the earnings release front. The second will be my story of the week. The third will be the latest performance numbers on our Disruptification Index.
This past Friday’s change in non-farm payrolls hit it out of the ballpark. Economists were expecting 190,000 jobs added, but it was trounced. There were 263,000 jobs added. The sectors that saw the largest increase in jobs were the highly paid professional and business services positions followed by construction.
The consumer confidence number also ticked higher with a print of 129.3, beating the 126.8 survey forecast. Consumer confidence is an economic indicator that shows how optimistic consumers feel about the overall U.S. economy and their personal financial situation. This tick higher means that the market decline we experienced at the end of the last year and the government shutdown earlier this year only weighed negatively on consumers’ mindsets temporarily.
This jump in consumer confidence is a powerful rebound and will positively carry us through the second quarter. To press this point further, check out this compelling chart from Bloomberg and the conference board. You will see four colorful lines: gold, red, white and blue. The lines that I’d like you to pay attention to are the gold and red lines.
The gold line represents the consumer confidence present situation, meaning how consumers feel about economic factors right now. The red line shows current conditions minus expectations. Whenever the red line crosses far above the gold line for at least three to four months, it’s a significant precursor to a recession.
This chart shows that since 1995 the red line has crossed above the gold line twice. This is where you see the yellow arrows. Each time, a recession followed. The first time was March 2001 through November 2001. The second time was December 2007 through June 2009. As of today, as you see in the green arrow, the red line is trending below the gold. For now, this chart is indicating no eminent recession.
Looking forward to this week’s economic releases, it will be a fairly light week with most of the econ releases taking place over the latter half of the week. Here are the most significant releases for us to pay attention to. As you can see in this graphic, MBA mortgage applications for the period ending May 3 will post on Wednesday at 7 a.m.
On Thursday at 8:30 a.m. we’ll see the initial jobless claims numbers for the period ending May 4. March’s trade balance report and April’s producer price index (PPI) final demand month-over-month print will be on Thursday as well. The final print for March’s wholesale inventories will post at 10 a.m. Rounding out the week, the consumer price index month-over-month for April will be released on Friday at 8:30 a.m.
Earnings season is starting to wind down. Check out this list of some of the top U.S. securities reporting earnings this week. There will be a total of 148 releases. These companies include Hertz, AIG, The Walt Disney Company and Cisco.
My story of the week focuses on the IPO of Uber Technologies. Its public debut is slated for Friday, May 10. The deal’s size is valued at about $8.5 billion and its share price midpoint will be about $47. The company will trade under the ticker UBER and Uber’s IPO will be the largest global IPO in five years. The last one was Alibaba back in 2014. It will be the largest IPO in the U.S. since Facebook in 2012. Simply put, it will be huge.
So, I want to make you aware of a potentially highly profitable venture that Uber is embarking on in India. It has to do with micro-mobility. The ride-hailing giant has partnered with Yulu, an electric scooter and bicycle-sharing company in India. Yulu’s vision is to reduce traffic congestion by providing a scalable, affordable, efficient and clean solution for the first mile, last mile and short-distance commutes.
Yulu offers electric scooters and bicycles with a maximum speed of 15 miles per hour.
According to the Economic Times, with a population of more than 1.3 billion people, addressing the first and last mile mobility in India has the potential to be even bigger than ride hailing for Uber. Not only will all eyes be on Uber’s upcoming IPO this week, but also on this new potentially lucrative micro-mobility venture in India.
Turning to our Disruptification Index, this chart shows it continues to outperform all the major indices year to date. As of Friday’s, May 3 close, the index is up 25% versus 13.6% on the Dow and 17.5% on the S&P 500.
That’s it from me. Ian, what are you watching today?
Ian Dyer: Thank you, Amber.
About those macro numbers, I want to say a little bit about the productivity numbers that came out last Thursday. It was at 3.6% growth quarter over quarter. This is what fueled the GDP growth of 3.2% that came out the week before. Productivity is when you have more output per input. The fact it grew 3.6% compared to an estimate of about 2% is huge.
We don’t see beats like that often. It was the second-highest growth we’ve seen in nine years. One part of this report really stuck out to me in the manufacturing sector, which is very cyclical. When the economy does well, manufacturing does well. When manufacturing starts to drop, people get worried about a recession.
In this report it showed manufacturing had twice as fast output or growth as it did growth of labor. You had a certain number of people added to the manufacturing sector and, compared to that growth, the growth of manufacturing and productivity grew at twice the speed. This is great because a lot of people say that now that we’re at low unemployment rates it’s a sign that too many people are working in the economy and at some point that’s going to be too expensive to maintain and it’s not going to be productive anymore.
At this point, we are seeing manufacturing is still at a healthy level and we’re still getting a ton of productivity at these levels with these workers. With the jobs report of 263,000, as Amber said, construction was the second-highest number of jobs added. That’s another very cyclical industry that’s very promising for the economy.
There were 33,000 people added to that industry in April and now there has been more than 250,000 added over the past year. Manufacturing has seen an increase of 200,000 over the past year. So we’re still seeing these industries that drive the economy continue to grow and get hundreds of thousands of new workers in the past year….
I want to also say a little bit about earnings. As Amber said, we’re wrapping up this quarter. Of the 78% of the S&P 500 companies that have reported, 76% have beaten the analysts’ estimates of profits and 60% have beaten analysts’ estimates of sales. We were talking a little bit about earnings before the season started. We pointed out that the fear that engulfed the market at the end of last year caused analysts to set the bar low for 2019.
They feared there would be a steep dropoff in earnings and we would see early signs of a recession starting this year. We’re seeing continued strength in companies’ growth in sales and profits. It’s still looking very good. We’ve seen the market hit record highs as recent as last Friday. The earnings season so far has been very good overall.
Finally, I want to talk a little bit about IPOs. Along with the negativity about earnings toward the end of last year, there was a lot of anticipation about new companies coming into the market. Amber mentioned Uber. We also had big companies like Lyft. There was also some negativity there. People are saying the main reason we’re seeing IPOs is because the venture capitalists behind them want out because they see a recession on the horizon.
While it is good of them to take profits and we can’t blame them because these companies have grown so much over the past couple of years, we don’t believe this is the case. Instead, you can see this as a sign that these companies see the market as somewhere they are going to find demand in their stock.
Something we’ve talked about with disruptification is old versus new. These companies are representing the new. Of course there’s going to be a lot of demand for their stock. These are the futures and what people are going to continue to use for decades to come.
The one I really want to focus on is Uber. Something that has really captured a lot of headlines on them recently is that they said they may never be profitable. If you’ve checked investment websites over the past couple of weeks there’s a good chance you have seen some article pointing this out.
However, it’s really taken out of context. What this really is, is one of the many risks that’s outlined in this document that’s hundreds of pages long that every company has to file before an IPO — it’s called an S-1. Some other companies that have filed the S-1 that have not been profitable when they went public — like Amazon and Google — have said the same thing.
When you’re talking about the risks of your company you have to cover all your bases and be comprehensive just to let investors know what could happen. We don’t see this as an issue. Amazon and Google have done this, countless companies that aren’t profitable when they’re going public are doing this. It’s not really anything uncommon. It’s just something that was blown out of proportion by the media.
Getting into some reasons why we believe Uber is going to be profitable is because they are growing their sales at a huge pace and their expenses are becoming dwarfed by those sales. In 2016, their operating expenses were about 98% of their sales, which means a lot of their income was going straight to things like paying their workers and overall expenses. By 2018, that number dropped to 62%.
We’re seeing they’re growing their revenue way faster than they are growing their expenses. We believe this is going to continue as they continue to expand. It’s going to lead to profitability. Just to outline a few of the ways they are growing, the first I want to point out is the numbers of rides.
Of course ride sharing is the biggest part of their business. The number of rides they have given has gone from 5 billion to 10 billion in the past year. It’s doubled. They had 5 billion new rides in the past year compared to the 5 billion it took them six-and-a-half years to get to before that. We’re seeing exponential growth there.
We’re also seeing them expand that ride-sharing business from 400 to 700 cities in the past year. They are now in 63 countries. If you add up the population of all those countries, it gives you their potential market. It adds up to 4.1 billion people. Right now there are only about 90 million active accounts on Uber.
That’s just over 2% of what they could capture in the overall market. At this point where they’re still growing so fast it’s hard to see them not becoming profitable when they have 4 billion people in an untapped market.
Lastly, they have really started to grow their Uber Eats business. It’s one of the fastest-growing food delivery businesses in the world. They’ve grown from 280 to 500 cities in that part of their business. They’ve also added over 100,000 restaurants to their selection. They are starting to capture a lot of market share in both segments. With 4 billion people still untapped there’s still a ton of room to grown.
They are valued right now at about $80 billion to $90 billion. If you said $80 billion is way too much for them, it might be for a really short term, but you might see the stock drop after it goes public. It would be a great time to buy in as a long-term investment. When you talk about $80 billion, that’s not even in the top 100 of publically traded companies.
It’s not as big as it sounds even though it’s such a huge IPO. Overall, we believe Uber has years of growth ahead of it. They’re going to be a dominant force in their market. We believe they will be profitable and start to build that valuation higher in the process.
That’s all I have for this week. Paul?
Paul Mampilly: Thanks, Ian.
I have to say that listening to the negativity, whether it’s directed toward Uber or our economy or are markets, you just get tired of it after a while. We have been going through this for 20 years. For 20 years someone has always been ready to tell you when something is going to go wrong. Someone has always been ready to tell you why the market can crash or why something is never going to work.
Personally, I’m completely fed up. All you have to do is look at the evidence. I personally invested in Google’s IPO. I have to say I was foolish enough to listen to some of these naysayers. I sold out of my Google a long time ago. Obviously that was pretty stupid of me. I didn’t have that much money at the time and I needed the money.
I made a good amount of money, but even if I would have simply kept a few shares of it, it would have been great. All the same objections that people have to Uber or Lyft or all these new companies were all said back then. The media was the focus of all this bad information. They generally sent you the wrong way almost all the time by focusing on the wrong pieces of information and just generally being incredibly negative.
I’m just going to continue from where Amber and Ian were going and tell you that IPOs are going to be massive. In 2019 and 2020 they are going to be unbelievable. The reason is because …we are coming out of this slumber of 20 years where this country has gone into deep sleep and everybody just wanting to hide underneath their desk and be afraid of everything.
We now have incredible new companies that represent the new world that’s being built out. These are global companies that represent new ways of doing things. Yes, of course they are still growing. Because of that, they are — for now — unprofitable. Some of these criticisms, whether they’re leveled at Uber or somebody else, are crazy.
Uber is growing at such a rate they would be stupid to focus on profitability. Why would they stop investing in their business that’s growing at 100% and try to capture profit? They are taking every dollar they can and putting it into their business. They need more money because their opportunity set is so huge. Some of this stuff is insane.
I would tell you to just dismiss these folks, ignore them. Listen to us instead. Make sure you and all your friends are subscribed to Bold Profits Daily so you can get a different view of the world and the markets and the way things are going.
As you know, we have been discussing creating a phenomenal service that really gives you insight into all these new companies that have been stockpiled in the private world and are ready to come public.
We’ve seen them come public recently. We saw Pinterest come public. We had this amazing, Beyond Meat company, which synthesizes meat instead of growing it on a farm and killing an animal… The IPO for Beyond Meat was up 163% in a day. We think there’s a massive opportunity for regular investors to buy into these companies…
Of course there are superstar companies out there. Uber is one and Airbnb will for sure come. If you haven’t been paying attention, I’m just going to run out some IPOs that have come, and listen to these gains that have come.
In two weeks, Tradeweb — which has done to the bond market what Amazon and Uber did to their markets — their stock was up 56% in two weeks.
What about PagerDuty? This is a software company that sits under the internet layer at which we all go in at. This stock was up 95% in three weeks. Just think about that — boom!
Zoom Media …was up 120% in three weeks.
Last one, Jumia Technologies — the Amazon of Africa — up 85% in three weeks.
The reason I’m bringing these up is because there is a layer of lesser-known companies that are coming public. There’s so much demand for these stocks because of the slumber we’ve been in for 20 years where people have been bearish, negative and pessimistic.
And now there’s a hunger for these new companies.
We think it’s going to last for a while. It may even last three to five years. At the peak in the year 2000, which is now 19 years ago, we had over 9,000 publically traded companies in this country. Today we have less than 5,000. Where did those companies go? Many of them went bankrupt, some of them were bought up, some simply went out of existence.
So, there is a ready market for a lot of these companies. People are going to buy and be supportive of these stocks.
For example, Amber wrote about a company last week in Bold Profits Daily — and, again, make sure you’re subscribed because we’re giving you incredible information — called Chewy. It’s a pet company. They are going to come public. We have no idea for sure if it will be a good IPO because IPOs are complicated. This is why we are creating this service.
You have to know how to trade them and analyze them. You have to figure out should you hold it or should you sell it. This is the kind of complexity where a good service can add a lot of value. Look out for emails from my publisher on this service. I believe it’s going to be a phenomenal service and you won’t want to miss out.
Quickly, Ian and Amber talked about productivity and jobs. If you’ve been watching us, you know we’ve been on board with this. I’ve been telling you productivity is about to go up for about six months now. I saw the first sign six months ago and you can go back on the YouTube channel and see where I mentioned this.
Ian’s exactly right. We are now in an economy where if you add capital or a person to a company, they add so much value that it’s worth adding a second person. That’s what productivity is. In other words, you get more than what you’re paying for. Of course that makes a business owner want to invest more. That’s obviously a really good thing for our economy.
I saw a headline that confirms what Ian was saying. What is going on is very different from the last 20 years. What we have going on, even though it’s through technology and investments in the new, is a blue collar boom. The businesses that are booming are in construction and making things. I’ve said this before in a couple updates, we are going back to a country that makes things.
For the last 20 years we shipped all that work to other places. But using technology and Internet of Things and the megatrends we tell you about, we are now back to making things. You can see what that’s doing to employment, productivity and our economy and that’s awesome.
The stock market, in response, and I know it’s selling off today because of tweets from President Trump, etc. However, the stock market is hitting new highs. While there’s always going to be ups and downs, we think that stock market is going to continue to go higher. I want to mention one other country that has just begun a bull market. That country is India. Most people are focused on China or Europe, however India is a huge market.
It’s a democracy, they have more than one billion people, it’s a free market, they have a stock market where there’s a lot of cheap companies and where that consumer is similar to the American consumer. I’m unbelievably bullish on India, which is why this week — and here comes, I admit it, a shameless plug for one of our services — we’re releasing an incredible stock. It’s a phenomenal company that is going to roll out many of our megatrends around the world.
They are a consulting company that pushes people out to implement Internet of Things and artificial intelligence all over the world. It’s an unbelievable company and we’re going to release it this Wednesday and you don’t want to miss out. That’s going to be in our $10 Million Portfolio. We’re sending out emails giving you a chance to subscribe. Don’t miss it.
A quick rundown of some popular companies and then a quick rundown of what happened at the Berkshire Hathaway meeting. That’s Warren Buffett’s company and a lot of people pay attention to what Warren Buffett says…
One of the things that Warren Buffett said that I’m going to take the opposite side on. He questioned whether or not Tesla would be able to sell insurance. This is one the things Tesla said they want to get into.
According to Warren Buffett, he thinks that Tesla is likely to fail. In general, Warren Buffett has been skeptical of Tesla. While he thinks Elon Musk is a smart guy, he thinks Tesla is a poor company. I’m going to disagree with Warren. I actually think that Elon Musk is right. In today’s world, having critical primary data is more important than the old way of how insurance companies calculate risk. They do that by looking at historical incidents.
But Tesla has real-time data on how a driver is actually driving. They can see actual incidents and see …what actually happened and what caused an accident. That’s what’s informing their autopilot — their self-driving program. They are just looking at it and saying where else they can use this data. They realize they can actually tell less risky drivers from more risky drivers because they have primary data.
Warren Buffett’s companies — I think 70% of Berkshire Hathaway is insurance companies. Tesla represents a clear and present danger to all of their auto insurance companies and other auto insurance companies. So, I’m going to do the contrarian thing and say that while, in the short term, Tesla stock might go up and down, long term I think Warren Buffett’s car insurance empire is probably at risk. If I were him, I’d be worried.
I also want to quickly mention a couple other things that came up during the Berkshire meeting. Warren Buffett was very famously skeptical of all technology companies, particularly in 1999 and 2000. For a long time, he was right. If you bought at the peak of the internet boom in 1999 and 2000, you had to sit through a long period where you were down.
I have gone back and done this. Today the value of a company like Amazon has gone up so much that even if you bought at the peak — at the very highest price of the internet bubble of 1999 and 2000 — you are beating the S&P 500, you are beating Berkshire Hathaway, you are beating everything.
So, no wonder Warren Buffett that finally is buying stock in Amazon. This is really something. So, about 20 years later, Warren Buffett is finally joining the technology revolution. That was some of the observations from Berkshire.
Apple reported their earnings last week. As you know, I’m famously negative on Apple because their business looks to be in decline. And that’s what they reported. They had a 17% decline in revenue. iPhone unit volume is down. The reason I believe Apple continues to keep its share price is because they’re buying back a lot of stock.
$75 billion is going to be added back. They are also going to raise the dividend. They are spending a lot of time supporting their stock instead of using their money to innovate and support their business.
Last thing, crypto roundup. You know that I believe that cryptocurrencies represent the future of money and the future of finance. It’s faster, it’s better, it’s cheaper and more convenient. Bitcoin, last week, hit $5,800. I told you in 2017 that there was a bubble in cryptocurrencies. I also told you when I believed bitcoin bottomed and that you should buy in. That was at around $3600 or so.
Now, bitcoin is at $5800. The reason for it is of course there’s all this political turmoil in Venezuela and there’s also some problems brewing around the finances of Brazil. In the past, when you saw that you would see people reach for gold …or go buy the U.S. dollar. Today, however, cryptocurrencies represent a real alternative.
You are seeing no impact on gold, however bitcoin and some of the other cryptocurrencies are going up. So, this is a place where I am very optimistic about what I believe is going to unfold. At some point in time it’s something we might like to explore. Maybe we’d start our own crypto service. That’s something I might have some news about at some point in time.
Back to you, Amber.
Amber: Thank you, Paul. Thank you, Ian. Excellent insights today. Thank you to our subscribers and listeners for tuning in today. Just a reminder, if you like what you see on this channel, please subscribe to us. Comment and share the videos so we can share this knowledge with everyone. Thank you again for tuning in. Until next week, have a wonderful week. Take care.
The market’s going crazy with IPO fever.
With 40 new IPOs added so far this year, it’s safe to assume that investors are ready to invest in something fresh.
For example, take the incredible strides many of these IPOs have made since going public:
- Jumia, Africa’s top online retail site, is up 56% in the last two weeks.
- PagerDuty, a cloud-computing company, is up 95% in the last three weeks.
- Zoom, a video communications software company, is up 120% over the last three weeks.
But no IPO shows more promise for my team and I than Uber.
With its fast expansion across 63 countries and massive jump from 5 billion rides to 10 billion in just one year, Uber has the potential to drive profits higher once it goes public this Friday.
In today’s Market Talk, we explain why Uber’s current valuation is right in line with the way other current market giants started out, despite what some analysts have said.
We also discuss:
- Why we believe the market will continue making highs despite its recent dip.
- How India will become the next bull market to watch.
- What an increase of 263,000 blue-collar jobs means for the U.S. economy.
Editor, Profits Unlimited