Another Look At The Handy Zillow/Redfin Ratio
It's going to be worth keeping an eye on secondary names in the Ibuying space given the momentum that is taking place in the sector, led by Zillow. Have discussed Zillow extensively here in 2019. Most recently in a note titled "Here Is The Bottomline With Zillow At This Point In Their Business Cycle." The basic premise of the piece was that the markets have gone from skepticism about Zillow fully transitioning their business model to Ibuying to complete acceptance and love for the move. With that said, all Rich Barton has to do to keep the train moving is to continue gaining revenue momentum through the acquisition of homes. At the same time, their former bread and butter (Premier Agent) ad based business has to somewhat support the endeavor. In other words, the markets won't like Premier Agent revenue falling off a cliff. This is phase 1 of the transition of Zillow. In the phases that are to come in the quarters and years ahead, Zillow's inventory of homes will reach such a critical mass that it won't allow management to simply boost the share price in the same way they are being allowed now. The massive inventory that is to come will eventually freak the market out to an extent, creating urgency for management to come up with a creative means of capitalizing on being one of the largest homeowners in the country. This is a when not if type of dilemma the company faces. Where Zillow is currently within its overall business cycle, however, is the sweet spot. Their inventory of homes isn't scary yet. Their revenue growth can increase at a nice clip given the early nature of the concept. Competition hasn't yet figured out how to compete effectively with the 800 pound gorilla in the space. All good for now. Bringing us to Redfin. Today RDFN announced a partnership with the largest Ibuyer - Opendoor, which is undoubtedly an urgent response by both companies to Zillow's increasing momentum. While RDFN has a lot of catching up to do to ever reach Zillow's dominance in the space, the primary question from an investor perspective should be whether RDFN has enough going for it to ride Zillow's wave higher over the intermediate to long-term? Today's move by RDFN partnering with Opendoor is an official embrace of the Ibuying model by the CEO of the company who has expressed some skepticism about the business model of purchasing and selling homes in the recent past, mostly because of the balance sheet risk. This is notable given his experience and voice in the space. With a total addressable market...
GRUB Is Set To Be THE Story Of The Second Half With A Price Target Of $150
It wasn't that long ago that Zenolytics put out a note detailing how Zillow had the potential to be a great first half story given its track record of outperformance during the first half of nearly every year in its existence. The stock didn't disappoint, creating a gain in the 40% range during the first half of 2019. As we turn our attention to the second half of 2019, with every intention of replicating Zillow's results with another big swing type of opportunity, GRUB has popped on the radar in a big way. Well, let's be clear, GRUB has been on the radar since it went public some years ago. The current pullback is not something that was forecast by any stretch of the imagination. It is an opportunity, however, to take advantage of the fear related to the massive turbulence that is taking place in food delivery presently. The turbulence in GRUB's space has been related to a well funded group of competitors making life for the only profitable player in the space (GRUB) difficult. This has led to compressed margins and declining net income as GRUB has had to grab its WuTang Sword to drive back the oncoming swarm. All the meanwhile, due to the various incentives competitors such as DoorDash and Postmates are offering, which basically equates to free food in some circumstances, the competition is picking up market share. To be sure, DoorDash now has greater overall market share than GRUB for the first time ever. All the meanwhile, DoorDash is getting late round funding at a $13 billion valuation. GRUB is currently trading at a $7 billion market cap for a relative comparison. Why step into this seemingly crowded market with GRUB? Total addressable market here is substantial. To date, we are only seeing 5% saturation in the restaurant digital delivery space. Either GRUB is terribly undervalued or venture money is insane for valuing DoorDash at a near 100% premium to GRUB. Highly likely its the former. Management at GRUB is terrific. The CEO is the original founder, having grinded from near nothing into a company with a billion plus in revenue. He recently purchased a million dollars worth of stock in the open market. The chief product officer of the company is a former Amazon executive with a vast amount of experience delivering for consumers as AMZN's head of consumable customer experience. GRUB possesses an end to end solution for restaurants wanting to enter the digital space, with everything from customer relationship management, reward programs and an end to end digital presence. The 95% of restaurant sales that aren't online is the target...
Zenolytics Sees Upside of 100% in SNAP Shares From Current Levels
Zenolytics is recommending shares of SNAP for aggressive portfolios with an intermediate to long-term time horizon. Initial price target on the shares is $22. SNAP's problems post-IPO had everything to do with the fact that while company is extremely popular among younger individuals, it didn't have in its possession a cogent pathway towards gaining revenue from advertising. Initial plans were scatter-brained and poorly executed. This lack of vision led to a precipitous decline of greater than 80% from 2017 to the end 2018 in the share price post-IPO. Recently, however, the company has been executing on an ad strategy to its young audience. SNAP reaches 90% of 13 to 24 year olds in the U.S., putting it in a leading position among advertisers who want to reach this audience. A recent report by Statista show that Generation Z users rate SNAP as their favorite destination with Instagram a close second. In a perfect world, SNAP should have waited for their traction and consistency in advertising to reach present levels prior to issuing shares to the public. The company's lack of patience in going public is an opportunity for new investors. Among the many improvements, SNAP has tweaked its Android offering recently, allowing previously disgruntled advertisers to come back to the company. There has also been a broad diversification of their social media offerings, focused on gaming and ecommerce, allowing the company to greater leverage its massive user base. Some highlights from the recent conference call: CEO Evan Spiegel: “As of March, our ads can now reach more 13 to 34 year olds than Instagram in the United States. Our business generated revenues of $320 million in Q1, an increase of 39% year-over-year and our year-over-year revenue growth increased by three percentage points versus the prior quarter. Our adjusted EBITDA loss in Q1 was $123 million, representing a 43% improvement year-over-year. This is the second consecutive quarter, where more than 100% of our incremental year-over-year revenue flowed through to our bottom line.” CEO Evan Spiegel: “As of the end of Q1, our new Android application is available to everyone. Compared to the prior version it is 25% smaller, opens 20% faster on average, and is modularized to allow for efficient ongoing innovation. On some of the lowest-performing devices, this resulted in a 6% increase in the number of people sending Snaps, within the first week of upgrading to the new Android build.” CEO Evan Spiegel: “We recently launched Snap Games, which allows our community to play high quality mobile games with their friends in real-time through our chat service. This was the result of more than two years of investment...
Sector Highlight: Single Family Rental REITs – Bullish
Zenolytics is bullish on single family rental REITs for conservative portfolios: AMH - American Homes 4 Rent INVH - Invitation Homes The largest homeowners in the country post financial crisis are private equity firms and corporations. Single family rental REITs purchase portfolios of homes for the purpose of renting them out and capital appreciation on the underlying real estate assets. Rental REITs thrive in a low interest rate environment due to a cheap cost of capital to expand their real estate portfolios and appreciating real estate prices incentivizing consumers to seek out rentals. The 11% decline in the ten year yield thus far in 2019 has created an attractive situation. The negative correlation to rates (rates decline, single family rental REITs appreciate) has been showing up in performance YTD: AMH +21% INVH +26% The uptrend in the sector is set to accelerate. AMH and INVH are conservative, low volatility plays on the sector. Growth at INVH is accelerating while operational efficiencies are taking place: 18% growth in funds from operations in Q1 Highest ever average occupancy of 96.5% in Q1 A 9% decrease in net cost to maintain properties in Q1 In the most recent earnings call the CEO stated: Fundamentals are fantastic. New single-family supply is not keeping pace with demand, especially in Invitation Homes markets where household formations in 2019 are expected to grow at almost 2% or 90% greater than the U.S. average. With the millennial generation aging toward our average resident age of 40 years old, we are convinced more and more people will continue choosing the convenience of a professionally managed single-family leasing lifestyle. He goes on to state: Now our operating teams continue to get more efficient. Our asset management teams continue to enhance the portfolio. And our capital markets teams continue to reduce leverage on our balance sheet. Across the sector, the message is the same: Economic tailwinds Demographics tailwinds Operating efficiencies Portfolio enhancements Reduction in leverage AMH is experiencing much of the same benefits: 11.6% growth in funds from operations in Q1 96.7% occupancy AMH has the most conservative balance sheet in the industry, with no significant maturities until 2024. Additionally, there has been significant insider buying taking place at AMH over a considerable period of time, led by the original founder of the company. The low volatility, income producing nature of INVH and AMH make them a conservative portfolio investment. Zenolytics is adding AMH and INVH to its conservative portfolio with a quarterly review period for further allocation or liquidation. Zenolytics now offers Turning Points Premium service for unparalleled insight into critical junctures for stocks, indices and commodity...
Zenolytics Goes Bullish On AMD
The SOX has experienced a ruinous decline during May, falling 11% from its April high, while key components within the average such as XLNX and NVDA have been treated like scraps of red meat for the eagerly awaiting, starving population of bears. In what has been a form of subtle bullish signalling, AMD has refused to to participate in this foray of self-loathing behavior among the semiconductor names, instead choosing to pin itself to recent highs, directly beneath a key trajectory point, while there are very obvious signs of accumulation taking place. In the category of technical imagery, this is the equity equivalent of increasing the throttle on the jets before takeoff. In the midst of this bullish technical dance are a symphony of bubbling positive fundamental developments: Data center revenue has doubled year over year Gross margin expansion Market share expansion versus competitors, specifically: INTC and NVDA A growing list of competitive product offerings targeting high growth markets, including gaming and datacenter markets Potential immediate upside catalyst 2019 Computex Conference May 28-June 1, with the CEO of AMD giving the keynote address Zenolytics is bullish on AMD seeing a test of the 2018 highs at $34 as being imminent, with the possibility of further gains entirely dependent on whether the market gains traction away from the current bearish regime. Zenolytics now offers Turning Points Premium service for unparalleled insight into critical junctures for stocks, indices and commodity issues. Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or...
Making The Case For Gold
As an investment gold has a cult like following among a rigidly fanatical group of aficionados who like to use words like “fiat” and “ponzi” as often as possible. They discuss the metal as if it has mystical properties that will provide them with protection regardless of the circumstance, having thousands of years of history on their side as evidence of the utility of gold as an investment, a currency and ultimately an insurance policy against all the eventualities of mankind. For this reason gold is often seen by most investors as an instrument of the paranoid to protect against an unseen, unrealistic set of risks that are so anomalous that even mere consideration of gold as an investment is a waste of time. Outside of the realm of fanaticism and paranoia, the function of gold within an investor's portfolio is extraordinarily simple: During times of turbulence it acts as an insurance policy. It is effectively an unexpiring put option against monetary policy mistakes; aggressive acts of fiscal stimulus; conflicts between world governments; geopolitical risk AND tumbling equity markets. Before proceeding any further, let me clear: If it wasn't for the breakout that occurred in 2001/2002 for gold that propelled the metal from the $300 range close to $2000 before experiencing a 44% retracement between 2011 to present day, I wouldn't be discussing the metal at all. In other words, if gold was still sitting at $300 and the massive, long-term shift in the secular trend had not taken place, then it wouldn't be worth mentioning. Gold is only worth discussing because it is now in a long-term uptrend. The move down in recent years is simply a pause in that uptrend, with a resumption set to take place at some point in the not too distant future. As with everything I do in the markets, the foundation for my interest in gold is technical/pattern recognition driven in nature, further backed by fundamentals that support the technical/pattern recognition data. There are statistically significant patterns being developed in both physical gold and gold miners that are some of the most productive in a market devoid of productive bullish patterns. Most strikingly, perhaps, is the symmetry that has occurred between the secular low in 2000 for gold and the low in 1970, followed by the behavior in the metal in the years following. Here are some highlights: Both lows occurred at the turn of a new decade (1970 & 2000) Both lows occurred around shifts in the global currency system (1971 cancellation of Bretton Woods & 1999 introduction of the Euro) Both lows occurred after multiple decades of disinterest in gold...
Opportunity Found: Specialty Property Casualty Insurers
The property casualty space is one I watch closely for a number of reasons: It's an industry that doesn't change much and is largely insulated from technological disruption Good management matters in insurance. So the ability to evaluate management remains a relevant art in the sector. The good companies in the sector can compound capital at an admirable rate, causing well defined uptrends that tend to be smoother and last longer due to the steady growth dynamics involved. Good management can capitalize on float to aide return on equity. In an rising rate environment this becomes an even more tangible advantage. So when I see a number of the names I watch closely in the sector begin putting together inspiring technical patterns, while fundamentals are improving in a rising rate environment AND insiders are buying in all the meanwhile, it becomes something that deserves some attention. Here are a few that deserve more attention than they are getting outside of the insurance nerd circuit: Let's look at what management at these companies are saying regarding recent earnings: UIHC: "Q1 2018 saw a continuation of some very positive trends at UPC Insurance, excellent and balanced organic growth, solid and improving non-cat loss ratios, and stable or increasing average premiums. Because of these and other favorable trends, we were able to produce almost $25 million of EBITDA and over 13% annualized ROE in a seasonally low quarter and despite cat losses from winter storms in both the Gulf and Northeast regions." "Highlights of UPC’s first quarter 2018 included GAAP net income of $8.4 million or $0.20 a share, non-GAAP core income of $17.3 million or $0.40 a share, total revenues in excess of $180 million, an increase of 47% year-over-year and we saw continued improvement in loss ratios and our combined ratio." "Some additional insight into UPC’s revenue growth for the quarter includes gross premiums written of $280 million, up 66% year-over-year; net premiums earned of $163 million, up 52% year-over-year." And here are some highlights from commentary given by management at UVE regarding their most recent quarter: "We’re pleased with our results for the first quarter. Overall, we reported net income of 40.1 million and diluted EPS of $1.12 for the first quarter of 2018, which equates to an annualized ROE of 34.6% for the quarter. We reported excellent top line growth in the first quarter with 10% growth in direct premiums written including 7.2% growth within Florida and 32.7% growth in other states." "Net investment income was 4.8 million, growth of 77% from the first quarter of '17. The increase is the result of higher returns from our...
RESEARCH REPORT: ARIS NETWORK SERVICES (ARIS)
The most recent research report for T11 Capital Management's newest holding ARIS is available below: Download (PDF,...
BACK IN REAL INDUSTRY (RELY)
There is some history here with this company, so let's do a brief review. I originally released the research report on RELY (back then it was SGGH) in October 0f 2014. The company had just made its acquisition of the aluminum recycling subsidiary of Aleris Corporation. Just a short while later, in December 2014, I exited the position due to a number of reasons, including wanting to raise cash to allocate into Impac Mortgage. On Monday, I reinitiated our position in RELY at what is roughly the same price I exited in December 2014. There have been some material improvements taking place at the company that are worthy of mention. Also, the fact that RELY escaped what was a brutal year for commodities (aluminum included) unscathed, marks an important test for management that they passed surprisingly well. For me, this is an example of the market telling a story through price that fundamentals have yet to properly capture. For all intents and purposes, given a depressed commodity market in 2015 and the newly minted, leveraged state of the company, RELY should have suffered much more than it did. The fact that it did not is a clear tell. Here are some of the material improvements/catalysts coming into play for RELY: RELY generated $81 million in EBITDA in 2015. One of the best performances for the company during a terrible year for commodities. Issued a "CEO Challenge" in 2015 to reduce costs by 1% ($13.4 million). Managed to cut costs by $15 million. The target for cutting costs in 2016 has been raised to $17 million. Consumption of aluminum is slated to grow by 6% globally in 2016. Additionally, the automobile aluminum supercycle is in its infant stages, with RELY positioned to be a significant supplier in the automobile space. Only 30% of the companies revenues are unhedged. The remaining revenues come from either tolling or are hedged. Free cash flow machine that has allowed for a $50 million reduction in debt in 2015. The company possesses some $900 million in NOLs that haven't been tapped into as of this date. It has been stated that Aleris is not the platform to utilize the NOLs due to significant depreciation expenses. The company is looking for bolt on acquisition candidates, passing on a myriad of deals in 2015 because they did not meet the company's requirements. Management is committed to making accretive future acquisitions while preserving ownership for current equity holders. In other words, very little future dilution. A strong movement taking place in government towards import tariffs...