Roku, Zillow & Uber

Roku smashed their quarterly numbers, which led to a big pop at open yesterday & the stock was up over 25% on the day. They are winning on top of winning, with revenue per user up, users up, and users using their service more and more.

Zillow reported quarterly numbers which beat expectations & have their stock up about 6% today in spite of the market sliding on the trade war narrative.

I’m not seeing how the Zillow numbers were good. Their core high-margin business continues to decelerate.

  • their core (high-margin) Premier Agent business was up 2% YoY from $213.7 million to $217.7 million
    • in prior quarters they claimed slowing growth in this business line was from shifting the business model from selling email leads to selling a mix of email & phone leads
    • I think a couple other things hit them though:
      • the TCJA lowering salt deductions caused a slowdown in some of the bubble areas
      • some of the areas that were less bubble driven do not have as efficient of auctions for attention so Zillow is not able to capture as much of the vig on those markets
      • some state & local taxes have went up in a way that more than offset the federal income tax decline
  • Zillow claims they are already getting $200 million a day in dealflow to look through, with an offer to sell every 2 minutes. They refer sellers to local partner agents & in spite of this additional dealflow their Premier Agent business was still only up 2% YoY.
  • There is also an ongoing class-action lawsuit against the NAR which could blow up the 6% commission model.

I still see Zillow as having strong value that would be nearly impossible to recreate for less than the cost of buying the company outright. But you would think they would have more growth in their core Realtor-focused ad products given how dominant they are in their category.

Uber opened down about $3 below their IPO price of $45 a share. The wave of startups adding to the stock market could adversely impact aggregate share scarcity.

If this was just about economic growth, the S&P 500 this cycle would have peaked around 1,850, a thousand points lower than where we are now. … What has been the driver is this near-perfect symmetry we have seen: between a US$4 trillion expansion of the Fed’s balance sheet, a US$4 trillion surge in corporate debt, and US$4 trillion in share buybacks. By creating scarcity in the market for safe securities this cycle, investors were forced to move up the risk curve and this meant tremendous opportunity for CEOs and CIOs to issue gobs of debt to receptive yield-starved investors. And this debt, or at least 25 per cent of the new issuance, went to fund an unprecedented wave of share buybacks.

David Rosenberg

If the trade war goes astray, it could be a market top for some period of time, particularly if Uber has already seen their high.

“Gulf money is notoriously late to the party, purchasing Carlye Group in 2007 at the peak of the credit bubble, and anchor investors in Glencore IPO in 2011 at the peak of the commodity bubble. Now they are “all in” on Uber and opened offices in Silicon Valley to do more. … When the leading company in the hottest sector goes public, it reflects a peak in social mood and usually presents an important inflection point in financial markets. As a rule, insiders sell at the top. … The AOL Time Warner merger in 2000 culminated in the tech crash, the Blackstone IPO in 2007 presaged the 2008 meltdown, and the Glencore listing in 2011 marked the peak in the commodity super-cycle. Uber, we believe, will mark the peak in Silicon Valley and tech valuations.”

Jawad Mian

Update: The stock market turned up late in the day on (bogus) constructive trade talks, but Uber still closed off 7.6% down.

Those who expressed confidence in adverting a trade war based on the (bogus) constructive commentary get to wake up some presidential weekend Tweets stating otherwise.

There’s a very difficult problem with China and the trade situation: They have structured their entire economy around cheating and embedded it into the Community Party, which has top-level control over all of it.

Trying to change that is likely a bridge too far; it would require the Chinese Communist Party, and Xi himself, to acknowledge that (1) what they were doing was and is wrong and (2) they’ll cut it out.

The second you might get.  The first you won’t get.

Communists are never wrong, you see.  They can’t be.  To admit so is to admit their political and economic system is wrong and therefore that other competing ideas might be superior.  Down that road lies their own death and they know it.

Karl Denninger

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