🚘 Tesla rides with Bitcoin

Tuesday, February 9, 2021 by Robinhood Snacks | Disclosures

Tarjay schemes on Lulu

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Hey Snackers,

The 2021 energy we need: In May, SoftBank's earnings deck featured slides of literal unicorns falling into the "valley of coronavirus" (to represent its tech investments). Its latest deck includes a goose laying golden eggs, subtly titled: "Softbank = producer of golden eggs."

Stocks closed at record highs (again) as investors focused on progress toward a $1.9T stimulus package and strong tech earnings.

BTC
1. The Elon Effect: Bitcoin soars to a record on Tesla's $1.5B investment

The man, the meme, the legend... Elon Musk is making crypto headlines (again). Bitcoin surged as much as 20% to a record high of $47K yesterday, after Tesla revealed it invested $1.5B in BTC. Tesla also said it'll start accepting the crypto coin as payment for its cars (casual). Tesla's not the first company to get in on Bitcoin, but it's the biggest so far.

  • Last year: MicroStrategy poured $1B+ into Bitcoin, MassMutual invested $100M, and Square bought $50M worth of BTC for its corporate portfolio.

1 BTC = 1 Model Y?... Tesla’s move isn't a total shocker: Elon has been a big crypto cheerleader recently, and his Twitter endorsements have been credited with boosting coins like BTC. But why would Tesla's board allow it to pour $1.5B of its $19B cash reserves into a volatile crypto? In PR speak: To “diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.” Human translation: "We have some extra cash and think it’s a good investment."

  • Diversify: While Bitcoin is crash-prone, some see it as a hedge in case the US dollar loses too much value and prices soar (aka: inflation). While cash can theoretically be printed endlessly, Bitcoin supply is capped at 21M coins.
  • Maximize: Bitcoin has been on a tear, nearly 5X'ing since October (partly because of institutional buying). Tesla's hoping to gain more than it would with a traditional investment (or simply holding cash). If a company feels comfortable with its cash situation, it might place corporate funds in riskier investments — like Tesla just did.
THE TAKEAWAY

To go mainstream, a cryptocurrency must pass the "faith & acceptance" test... and Tesla's investment just brought Bitcoin closer to that. The US Dollar has value because it's backed by the government and controlled by the Fed. Bitcoin is a decentralized currency (aka: not controlled by a central bank), so it's value lies in people believing it has value. Tesla's latest move is a big vote of confidence: it could inspire other companies to invest and speed up mainstream Bitcoin acceptance. But if BTC crashes and Tesla loses on its investment, then it could have the opposite effect.

Stretch

Bitter as Lululemons... Barely a year after launching, Target's athleisure line "All In Motion" has hit $1B in annual sales. The private label sells things like sports bras, leggings, and yoga mats (pandemic trifecta). And it's quickly catching up to 23-year-old Lululemon, which made $2.3B in sales from January to September 2020.

Cutsey generic name (check)... Private labels like All In Motion, Good & Gather (food), and Cat & Jack (kid's clothes), are profit puppies for Target. They're not Target-branded, but they're Target-owned. Tarjay has launched more than 30 of these brands — and 10 of them are doing more than $1B/year in sales. Private labels are cheaper to supply than external brands, so the profit margin is usually higher. Especially for private label clothing:

  • Profit margin: How many cents of profit a company keeps for each dollar of sales. It costs Target less to make/sell its own pants than buy/sell Levi's, so Target's margin is higher for its own brands.
  • Clothing has higher margins than food or home goods (that’s why it's always at the front of the store). Companies can price clothes way higher than what they cost to make (not true for pasta).
  • The Tarjay Way: Most All in Motion items cost less than $30. But Target would rather sell those than Lulu fits, since it can keep more of the profit.
THE TAKEAWAY

Big retailers are becoming mini malls... And winning a spot on their shelves is becoming more crucial. Retail-pocalypse drove mall staples like J.C. Penney and Neiman Marcus to bankruptcy last year, while the pandemic accelerated retail closures. That's partly why 25% of US malls are expected to close by 2025. Meanwhile, Target and Walmart are transforming into one-stop-shops for all your needs, from groceries, to home decor, and fashion. That's why Ulta, Levi's, and Disney, have moved into Target – and why Sephora is moving into Kohl's.

What else we’re Snackin’
  • Eggcellent: SoftBank made $11B in profit last quarter, thanks to "golden egg" portfolio companies like DoorDash.
  • iCan't: Hyundai and Kia shares tumbled after they said they're not in talks with Apple to develop an iCar.
  • Block: China bans live audio app Clubhouse, which joins the fate of other American "free speech" apps like Facebook and Twitter.
  • Roburrito: DoorDash is buying robotics startup Chowbotics, signaling interest in automating food production to streamline order load.
  • Pause: South Africa paused its rollout of AstraZeneca's vaccine after a trial revealed it wasn't very effective against a common Covid variant.
  • BTW: Former President Trump's impeachment trial starts tomorrow.
Snacks Daily Podcast

Hershey's profit soared last quarter, because less is s'more.

The choco legend noticed that chocolate sales were 40% to 50% higher in areas with higher Covid-19 rates, so it focused on those markets.

Tune in to hear how the 127-year-old candy maker acted fast on key data.

Tuesday
  • Earnings expected from Twitter, Canopy Growth, Cisco, and DuPont de Nemours

Authors of this Snacks own shares of: Apple

ID: 1517266