Squid Gains | The Daily Peel | 10/19/21

Silver Banana goes to...

Market Snapshot

Gentleman, apes, and degenerates - welcome to the stock market. A mixed day like yesterday is what we stock pickers are here for. In case you missed it, the Nasdaq led on the day, gaining 0.84%, the S&P rose 0.34%, and the Dow lost 0.1%.

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Let’s get into it.

Macro Monkey Says

China GDP — It wouldn’t exactly take a genius to guess this given the headlines over the past few months, but China’s Q3 GDP growth dropped last night and it was not good. Economists pinned expectations at 5.2% whereas the actual number came in at 4.9%, showing a slowdown in year-over-year growth from prior quarters. On a quarterly basis, GDP rose 0.2%, also coming below expectations. I mean, just look at the GDP growth chart below - the sh*t looks like the most volatile stock in the Russell 2000, not the second largest economy in the world.

This all amid a crackdown on large companies in the tech sector and the Evergrande debacle ignited a reckoning on the debt that has basically powered China’s growth in the last decade or so. In other words, Xi is mad at the two factors that have likely been the most responsible for the nation’s incredible economic growth.

The report also indicated a drastic slowdown concentrated in industrial production, clocking in at 3.1%; well below the consensus view of 4.5%. While attributing direct causes to these figures is difficult, the National Bureau of Statistics hinted at increased “domestic and overseas risks.” I wonder what they could be talking about...

Squid Gain$ — While $900mm of anything is a number that most businesses couldn’t dream of getting too, it's just another show for Netflix. That show you’ve been telling all your friends to watch, it turns out, is a pretty big deal.

The ultra-hit Korean series Squid Game is well on its way to becoming the most watched show in the history of Netflix, and the company recently announced that it expects the dystopian drama to generate $900mm in value. Let that sink in for a minute — $900mm is about the same as the average market cap of the Russell 2000, meaning this nine-episode piece of content could on its own be a small-cap publicly traded company. Wow.

On its own, this is unbelievable, but it’s also a good reminder of the ups and downs inherent within this sector. To paraphrase the great philosopher Kanye West, “one good show is worth a thousand misses.”

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What's Ripe

Facebook ($FB) — For Facebook, fighting back against the crowd is becoming a core competency. Shares burst 3.3% on the day in anticipation of their soon-to-come earnings report. The thesis, as posed by analysts, is that Facebook will see around 37% sales growth and a 17% earnings bump for the quarter on account of a recovering economy driving growth in digital ad spending. This was a big win, and a much needed on at that, but it doesn’t mean anything until we see earnings on the 25th.

FuelCell Energy ($FCEL) — Remember in your Finance 101 class how they said strong earnings, sales growth, and a healthy balance sheet was how to achieve outperformance? Yeah, feel free to toss that out the window. Hydrogen fuel cell company FuelCell jumped 18.3% on news of its competitors doing well, getting hyped up on FinTwit, and arguably reaching a technical break out. Last week, we talked about Plug Power’s deal with Airbus, and it seems like that news is lifting the whole sector. Imagine if J.P Morgan came out and said “yeah, we just partnered with Square to start offering crypto services” and then Bank of America jumps 5% as a result. Ben Graham is horrified.

What's Rotten

Walt Disney Co. ($DIS) — Mickey took an L yesterday, as analysts on Wall Street are seemingly losing faith in the Mouse’s ability to drive growth. Barclay’s came out with a report slamming Disney, specifically Disney+, suggesting the streaming service pulled forward all of its growth during the pandemic. The firm lowered their price target from $210 to $175, barely above the current share price. At the same time, films like Doctor Strange and others announced delays in release. What a great day for Netflix. Shares dropped 3.0%.

Zillow Group Inc. ($Z) — The Z in “Zillow” stands for “zero”, because that’s where shares are gonna be soon if they keep up yesterday’s performance. The stock fell 9.5% on their announcement of halting their home buying business commonly known as “iBuying”. Basically, the firm has gone a bit nuts with the home purchases, buying 3,800 homes in Q2 alone and creating quite a backlog for themselves. Note to self: don’t buy thousands of homes without a plan to profit off of them.

Thought Banana:

Google is so Google — Google’s biggest moonshot is just getting underway, and it’s not at all what you’re expecting. The Google Bay View Campus in San Francisco is just about ready to start welcoming employees and the building is just so...Google. Every amenity or climate specialization you can think of and more is included. The shape of the roof is apparently designed efficiently, which I’m not too sure how that works but I’ll trust the architects here. Something else that sounds just fake is apparently the building has concrete structural poles that run deep into the ground and somehow can heat the building geothermically, meaning there is no need for natural gas or other environmentally damaging heating elements. All the craziness aside, Google is doubling down on its zig into office space while the entire rest of the world seems to be zagging away.

Wise Investor Says

“Don’t trust your own opinion and back your judgment until the action of the market itself confirms your opinion” — Jesse Livermore

Happy Investing,

Patrick & The Daily Peel Team

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