Key Points from This Alert:
1. We will continue to hold our existing all options positions:
2. As we do this, we’re sharing a very speculative idea with subscribers that leverages the growing mobile banking market in India
As we enter the belly of the beast for 4Q 2017 earnings season, we are once again in the midst of a cold snap that is hitting much of the U.S. The cold temps make staying inside and pouring over the earnings call transcripts a little easier, I’m not going to lie, and that’s a good thing given the return of volatility to the market this week. In the beginning of the week, yields and the dollar were the driving impact of market pressure, but some of that pressure was relieved following the Fed’s “steady as she goes” comments exiting its first FOMC meeting for 2018.
As we moved into Wednesday, corporate earnings after the close of trading were another matter. First, there was Facebook’s (FB) results that simply slaughtered December quarter expectations, but the shares traded off as the company shared it is fine-tuning Facebook to focus on meaningful connections. As one might expect this is having an impact on the arguably addictive nature of Facebook, and the company shared it is seeing a decline in user’s hours per day. The longer-term bet is these changes will lead to people spending more time on Facebook. Clearly Wall Street was not buying it given the tradeoff in FB shares in after-market trading.
Also, after the close Qualcomm (QCOM) shared it is seeing higher than normal seasonal declines in its chip business, largely due to inventory builds in the smartphone market. In my view, this sets the stage for Apple’s (AAPL) earnings report after today’s close.
We also saw Citrix Systems (CTXS) deliver favorable results but results fell shy of whisper expectations for the quarter and that led the shares to move lower in after-market trading.
And so on… I point this out because the after-market trading confirms the view that we’ve been sharing here at Tematica – the continued melt up in the market has led it to becoming priced to perfection. As I wrote yesterday in the weekly Tematica Investing issue, when actual results and an outlook or even the internals in an earnings report and guidance are somewhat different than what Wall Street is looking for, odds are there will be pressure on a company’s shares.
Here’s the thing – today will have the greatest number of companies reporting with a number of high profile companies that include Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), United Parcel Service (UPS), MasterCard (MA), Ralph Lauren (RL), GoPro (GPRO), Visa (V) and others. There will be quite a bit to digest and put into content relative to the other companies that have reported.
I often say I like to “measure twice and cut once” like a smart carpenter, and that means holding off with a new options recommendation today and doing so until we are in calmer waters. If the market volatility continues in the coming days, it means call options will likely get cheaper. As this week’s reports are digested and “measured” we can circle back on call option positions for Facebook, Universal Display (OLED) and others, more likely than not at better prices.
As we wait for these opportunities to come to us, we will continue to hold our existing all options positions:
Sharing a very speculative idea
This week, I wanted to share with you a unique micro-cap stock operating in the cashless payment arena in India. To say it’s a highly speculative opportunity would be an understatement, but it’s a stock that I personally invested in last year and I wanted to share it with you, if for nothing more than to provide some perspective of how in many emerging markets across the world cashless payments are leapfrogging over setting up a centralized banking system as we are so accustomed to in developed markets.
Last week, I and the rest of team Tematica attended the Inside ETF 2018 conference. As Lenore Hawkins and I shared on this week’s Cocktail Investing Podcast, Bitcoin was a frequent topic at the event. Bitcoin is an interesting resident in our Cashless Consumption investing theme – it’s a crowded market with more than 1,300 different coins that are gaining acceptance, even as its use is being restricted in countries like South Korea and China. Subscribers know that I always look for proof points and I saw one for Bitcoin when I recently paid my annual licensing fee to Microsoft for the use of Microsoft Office – I had the option to pay by credit card, debit card, PayPal and … Bitcoin.
Like I said, clearly part of our Cashless Consumption investing theme, and the under the hood technology behind it – Blockchain – falls under the purview of our Disruptive Technologies investing theme. As the availability of investible products for these two items become available, I’ll be taking a hard look at them for Tematica subscribers. I expect we’ll also have a guest or two to help break down Bitcoin and Blockchain on the podcast in the coming weeks.
While we can’t “invest” in Bitcoin, and the SEC is doing a good job to limit those viable opportunities, there are other ways for risk-tolerant investors to capitalize on our Cashless Consumption theme.
One of the more interesting markets when it comes to our Cashless Consumption investing theme is India. According to the World Bank, in India, there are 21.24 automated teller machines (ATMs) per 100,000 people compared to 223 per 100,000 people in North America and 47.55 per 100,000 across the globe. What about credit? Well, as of March 2017, according to the World the Reserve Bank of India (RBI) only 30 million credit cards have been issued. That’s a record high, but in a country of 1.3 billion people, 30 million credit cards are a blip on the radar screen.
These, as well as similar comparative statistics for banking locations, paint a clear picture that India is under-banked. At the same time, only one-third of India’s 1.3 billion residents have access to the internet. Of those who are able to go online, just 14 percent make mobile payments at least once a week, according to research firm Kantar TNS. One might think the low level of mobile payments is due to lack of phones, but you’d be wrong, very wrong. According to Statista, in 2018 the number of cell phone users in India is forecasted to rise to 775 million. Yes, nearly 60% of the entire population has a cell phone, but very few if any have a bank account, let alone a credit card.
To me, all of this looks like a major pain point, and pain points tend to be addressed.
In this case, one company that is looking to solve this problem is MoneyOnMobile (MOMT) a micro-cap company that recently completed an equity offering, which cleaned up its balance sheet and added to its coffers. I’ve mentioned the company before, but to jog your memory, MoneyOnMobile enables Indian consumers to use mobile phones to pay for goods and services or transfer funds from one cell phone to another be it as a SMS text message, through the MoneyOnMobile application or internet site. To date over 170 million unique customers have had payments made easier through over 300,000 retail merchants across India and its payments platform. That presence has allowed Money on Mobile to serve between 3 million and 5 million customers each month over the past year.
Through the six months ended September 2017, Money on Mobile recorded revenue of $3.2 million, up 29% year over year, but digging into that last 10-Q filing we find its September quarter revenue gapped up more than 80% year over year. In reviewing the company’s monthly revenue statistics that it published, its November 2017 revenue was up more than 300% compared to November 2016.
The rising revenue combined with the recent equity offering and debt restricting that removed balance sheet concerns have led MOMT shares to move sharply higher closing last night at 0.53 compared to 0.32 at the end of 2017.
Here’s the thing – there are no call options on MOMT shares, and in fact I would argue that when we look at the 52-week trading history between $0.11-$0.60, while they are equity shares, they are really more like call options. I’ve made some individual stock recommendations here in the past at Tematica Options+, both on the long and short side, but given the market cap nature of the company, MOMT shares are far from a riskless investment.
I will share that earlier this year I purchased some MOMT shares because I like the company’s position in a pain point filled market. Much like Amplify Snacks (BETR), I also see MoneyOnMobile as a potential takeout candidate by the growing number of companies that are looking to tap the mobile payments market in India.
Now, this is where I remind you that we don’t buy companies surely on takeout speculation, but because of the thematic tailwinds behind their businesses. In the case of MoneyOnMobile that would be the intersection of our Cashless Consumption and Rise & Fall of the Middle Class investing themes. I see MoneyOnMobile as a high risk, high reward micro-cap opportunity and it is one that I intend to be patient with and hold for some time. I’d also add that I am fully aware that growing competitive market place in India could very well squeeze MoneyOnMobile. This is not a position for the faint of heart.
To me, this puts it somewhere between Tematica Investing and TematicaOptions+. I’ll place the shares on the TematicaOptions+ Select List, and I will update with position commentary like I would any other position on that list. Again, if you can’t stand a volatile ride I would say MOMT shares are not for you. Don’t be offended, I’m just trying to make sure subscriber eyes are wide open.