Moat Market Intel: St Joe, Spotify, Atlassian and Cloudflare. Also Very Negative Investor Sentiment.
The stock market action recently has been on a slow staircase down, with low highs and lower lows.
October is also the week with the biggest price swings.
I wasn’t aware that this week statistically is the more volatile week since 1950 for the S&P 500. Hat-tip to Evil Speculator.
There was some very nasty one week return. I cannot believe that there were 1-week +14% return or -18% return. Why this week isn’t surprising because this week happens to be October’s options expiry week.
Given the volatility, I wonder if we are going to see some big upward or downward movement in the next 3 days.
All-Star Charts pointed out the bullish sentiment of the average of two investor surveys. Basically, the participants were not too bullish. That usually is a contrarian indicator that prices are not as expensive as when most participants are bullish.
SentimenTrader tweeted out that the volume of Inverse ETF reaches a new high. Whenever the demand for Inverse ETF is high it coincides with some short term bottom (as seen in the image in the Tweet)
Here is the rest of this week’s Moat Market Intel.
The Next 50 Years in Western Florida with Jorge Gonzalez, CEO of The St Joe Company ($JOE)
This stock makes up 90% of Bruce Berkowitz, manager of Fairholme Capital.
St Joe is a land seller and real estate developer which owns huge plots of land in Florida.
The share price has spiked from $16 in the doldrums to $46. This is a stock that benefited from the lack of supply of homes and decentralisation in the USA.
Ben Claremon of Cove Street Capital interview St Joe’s CEO Jorge Gonzalez and he shares various enlightening things about their business. Cove Street is currently not an investor in St Joe.
Here are some of the topics covered:
- How they try to diversify their income streams to recurring streams
- They used to just sell home sites and land, but when you do that you do not get participation later, so now they build the apartments themselves.
- Used to be holiday homes – very cyclical.
- The most misunderstood fact about St Joe: People do not want to move to Western Florida
- How to create an ecotone in residential, commercial and hospitality.
- How they allocate capital.
- There was a short article in 2010 written by David Einhorn, was there anything in that piece that Einhorn got right.
- There was also a short report that most of the developable land has been sold. What was left is only swampland. What is his view about that?
- Company history with hurricanes in Florida.
- It is quite messy to value St Joe, how would Jorge advise us on how to value it.
- How to detect if St Joe is getting better or worse.
Deep Dive on Solana
Business Breakdown did a deep dive on Layer 1 Blockchain Technology Solana.
Unlike many of the other chains, Solana is constructed to not have an issue handling a lot of transactions in a short period of time. This is unlike Bitcoin and Ethereum which currently has a bottleneck if the network gets congested. They have to rely on the layer 2 chains such as the Lightning network and polygon to handle the transaction validation in a much faster manner.
Of course, it is not without fault, and recently Solana suffered what I feel is long downtime in computing time.
The Job Market in the United States is Tight
3Fourteen Research put out this series of tweets on the state of the US job market.
I don’t really know what changed but this high capacity of operation means wages are likely going to be higher.
Worm Capital on Spotify ($SPOT)
Worm capital runs a concentrated portfolio.
At the time of writing, they own Tesla, Spotify, Shopify, Air Bnb and Amazon. This year, they did not perform well, but since inception, they are up an annualized 39%.
In this 3rd quarter 2021 letter, they expanded upon the appeal of Spotify, but not much. They do leave us with the following two charts:
Why Atlassian is Very Expensive ($TEAM)
Former proprietary trader Akram Razor released this article from behind his paywall.
Akram has no qualms about shorting something if the case is damn strong, which is all about putting the money where your mouth is.
In this article, he compares Atlassian’s valuation to a few more established technology companies such as ServiceNow, Twilio, Workday and Salesforce versus the size of their revenue.
Akram also highlighted that they were doing so well possibly because of the move to shift server and on-premise solutions to the cloud. So what happens when once that is completed this year?
Amazon AWS Versus Cloudflare ($AMZN vs $NET)
This is the second piece that Akram released.
It deals with Cloudflare recent blog post about the high fees Amazon AWS is charging, versus the competition, for data transit fees.
This piece really showed some of the deep work these guys did in looking up these areas. AWS’s competitors are not charging higher fees, it is just that they were discounting their customers as part of a consortium.
There is also a discussion of how big the total addressable market is, how to compute it. According to Akram, we are still a bit far from edge computing becoming the 4th cloud provider.
But he also wonders what will happen if competition is so intense that Amazon AWS need to start discounting away those data transit fees.
By Akram’s estimation, that would amount to a rather substantial shave to the margins.
The bigger question is… if this intense competition affects the moat of the defacto leader, what does that say about the defensibility of the various cloud companies?
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