e-X-treme Losses

Fidelity just released their latest holdings report for their Blue Chip Growth fund, which includes its position in X Holdings. Yet again, the fund manager deeply discounted the value of Musk’s social media site. Find out why below.

Author

Vyomesh Kumar
October 01, 2024

Silver banana goes to…

In this issue of the peel:

  • The International Longshoremen’s Association, North America’s largest longshoremen union, is actively holding the U.S. economy hostage. Threatening to go on strike at 12:01am today, nearly 50% of U.S. imports are at risk. Get up to date with the situation below.

  • I can’t believe Nikola is still in operation, but it turns out the firm isn’t just surviving but was thriving on Monday. Nio is getting some fresh capital for its Chinese business, and a third automaker, Stellantis, is taking a loss while it can. Lastly, EchoStar’s sale of Dish Networks is like a 4-team trade in your fantasy league.

  • Fidelity just released their latest holdings report for their Blue Chip Growth fund, which includes its position in X Holdings. Yet again, the fund manager deeply discounted the value of Musk’s social media site. Find out why below.

Market Snapshot

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Macro Monkey Says

Shipwrecked At Port

Gen Z TikTokers are huge on “Quiet Quitting.”

However, it seems that the rest of society still has the decency to stick a middle finger in their boss’s face before avoiding work at all costs.

And they don’t care if it shuts down the entire damn country either. I mean, just look at what dock workers across the East and Gulf Costs are about to do (nor not do).

Let’s get into it.

What’s Happening?

The 85,000 members of the International Longshoremen’s Association (ILA) are “all but certain” to go on strike at midnight last night, according to reports as of 5:39pm yesterday.

As they get ready to eviscerate shareholder value from sea to shining sea, members of the ILA are demanding a 77% wage increase over the next 6 years. 

Meanwhile, their boss, the evil, greedy scumbags of the United States Maritime Alliance (USMX), is only willing to give them a messy little 40% raise.

To make the case even more impossible, the ILA is also demanding an outright ban on automated cranes, gates, and trucks.

Basically, the ILA is saying, “We are demanding the largest wage increase in our union’s history despite the fact that cheaper automated replacements, who don’t ask for vacation time, are about to become available for mass production.”

Bold strategy cotton, and we’ll see if it pays off over the coming weeks. 

By the time you’re reading this, a deal may have already been struck. However, that is seen as unlikely because no negotiations nor informal talks were planned for Monday, so any conversation that may occur would be a last-minute, emergency dialogue.

Unions go on strike fairly regularly, but this one’s a lot more important than if the Starbucks Workers United union stopped making your morning espresso milkshakes for a few days.

The ILA is North America’s largest union of longshoremen. The group dominates ports on the East and Gulf coasts in the U.S., with the strike threatening to shut down 36 ports from Northern Maine to Southern Texas.

Those 36 ports take in anywhere from 43-49% of U.S. imported goods in any given period. So, without ILA members there to get our sh*t off the boats and on our front doors, international commerce faces a significant threat.

Companies like Walmart, Ikea, Samsung, and even poor Bob and his Discount Furniture are some of the most at risk.

Daddy Biden has the ability to shut this down with the stroke of a pen via the Taft-Hartley Act of 1947. The Act grants the President the power to force a suspension for up to 80 days as a “cooling off” period.

The Act hasn’t been invoked since 2002, when longshoremen on the West Coast were getting rowdy. At the time, 22 ports were shut down via a strike from the International Longshore and Warehouse Union, the West Coast version of the ILA.

The Takeaway?

Your latest TikTok Shop order may take longer than expected to arrive.

Railroad and trucking companies have been waiting for this, rushing on Friday to close out as many orders as they could from the ports set to shut down at 12:01am tonight.

$14bn worth of goods was rushed out as importers scrambled to secure as much of their supply chain as they could before walk-offs began.

According to the CEO of ImportGenius, a strike of “even a week will block the flow of hundreds of thousands of containers into the U.S.” 

Worse yet, much of the U.S.’s imported refrigerated foods comes through ports on the East and Gulf Coast, meaning that “time isn’t on the side of the importers.”

So, the ILA has the U.S. economy by the balls. We’ll see how long the strike can last, especially given a looming Presidential election that may cause the Biden Administration to act when it otherwise would not.

This is gonna get spicy.

Career Corner

Question

Hi mentors, how should you answer a question about your desired salary when you are required to select a number on the app?

Answer

Research their average salary on the WSO company database, glassdoor, etc., and put that.

Head Mentor, WSO Academy

What's Ripe

Nikola (NKLA) 6.76%

  • Every time this ticker comes across my screen, I get more and more amazed that the company hasn’t gone bankrupt yet. In fact, it was the opposite on Monday.

  • Shares remain down over 99% since its founder was arrested in July of 2021, but yesterday’s boost comes on a freshly inked deal with J.B. Hunt.

  • The trucking business is purchasing 20 Nikola Tre Fuel Cell hydrogen-powered trucks, helping achieve its goal of reducing emissions by 32% by 2034.

Nio (NIO) 2.45%

  • As Beijing fires a stimulus bazooka across the economy, Nio is getting a stimmy check of its own. New investments in the EV maker’s Chinese business have shares fired up.

  • “Strategic Investors” are dumping CN¥3.3bn into Nio China, the Chinese-market subsidiary of Nio Inc. Meanwhile, Nio Inc. is investing CN¥10bn into Nio China.

  • In total, Nio China will raise CN¥13.3bn from investors and its parent co via an offering of new shares. Nio Inc.’s stake in Nio China will fall to 88.3% from 92.1%.

What's Rotten

Stellantis (STLA) 12.52%

  • While updating its profit outlook for the rest of the year, Stellantis had the same realization this weekend that I did about my fantasy team: we’re f*cked.

  • The carmaker behind Jeep, Dodge, Chrysler, Maserati, etc., announced plans to reduce inventory shipments to North America by 200k vehicles for the rest of 2024.

  • Profit margin expectations got slashed too, now sitting in a range of 5.5-7%, down from “double digits” before due to “global industry dynamics.”

EchoStar (SATS) 11.48%

  • The Island of Misfit Telcos grew larger to start the week as a nauseating game of hot potato unfolds. AT&T, EchoStar, Dish, and DirecTV are shaking things up.

  • The news started with AT&T selling its remaining 70% stake in DirecTV to TPG. This gave DirecTV the cash it needed to purchase Dish Networks from EchoStar.

  • Along with Dish, DirecTV will take ownership of Sling TV too. Now, the only thing these companies need are actual customers.

Thought Banana

e-X-treme Losses

It turns out that founding the entire EV industry, putting chips in people’s brains, going to Mars, and digging tunnels under Las Vegas is collectively easier than running a website.

We’ve learned a lot from Elon Musk, but that’s easily our biggest takeaway after the latest report from Fidelity.

Let’s dive in.

What Happened?

Clearly falling victim to the woke mind virus, Fidelity is teaming up with the elites to make us eat our own pets and stop Elon from impregnating Taylor Swift.

Let me get my tinfoil hat before we continue.

The sick b*stards at Fidelity, when they aren’t busy managing retirement plans for half the U.S., had the audacity to mark down the value of Musk’s social media site, X.

I can’t imagine why.

Since taking over Twitter and rebranding it as X, the social media site has seen a collapse in dollars. Revenue is down 78% from peak and, according to Fidelity, so is the firm’s valuation.

On Monday, in their monthly holdings report for Fidelity’s Blue Chip Growth Fund (FBGRX), the fund manager slyly signaled a 78.7% reduction in its on-paper valuation of X.

Initially valued at $19.66mn, Fidelity now values its stake in X at $4.19mn. That implies a current valuation of $9.37bn on an initial pricing of $44bn.

That makes Twitter/X one of the worst leveraged buyouts (LBOs) in recent history. I’m sure investors are upset, but Musk couldn’t care less.

Since October 27th, 2022, the date the LBO was completed, Meta, Pinterest, Snapchat, and Reddit have seen an average return of 139.52%. That’s mostly due to Meta hitting a multidecade low on October 28th, 2022, but X is the only one to have lost value in the past 2 years.

The Takeaway?

Despite the weak financial performance, user growth is up over 35% since the end of 2022, setting record highs on a monthly and annual basis.

For Musk, it’s been clear this whole time that the deal was never about earning a safe, reliable return. His goal was to restore Twitter/X as the de facto “Global town square” in the digital age by maximizing free speech and minimizing censorship on the app.

To that effect, the acquisition has been a roaring success. Use growth, posts, interactions, and screen time are all setting new highs, but monetization continues to be a challenge.

Paying for X Premium, subscribing to other users, and other strategies haven’t panned out well enough to replace lost ad dollars. But Musk seems to have bigger plans for his family of X-named companies, potentially turning X into the U.S.’s first “super-app.”

But they’ll probably need to make some actual money in order to do that. Or, just have the richest guy in the world fund the thing until we all get bored.

The Big Question: Can X become a successful investment? What other monetization strategies could X pursue?

Banana Brain Teaser

Previous

Running at their respective constant rates, Machine X takes 2 days longer to produce w widgets than Machine Y. At these rates, if the two machines together produced 5/4w widgets in 3 days, how many days would it take Machine X alone to produce 2w widgets?

Answer: 12 days

Today

A certain university will select 1 of 7 candidates eligible to fill a position in the mathematics department and 2 of 10 candidates eligible to fill 2 identical positions in the computer science department. If none of the candidates is eligible for a position in both departments, how many different sets of 3 candidates are the to fill the 3 positions?

Send your guesses to [email protected]

❝

When something is important enough, you do it even if the odds are not in your favor.

Elon Musk

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Happy Investing,
David, Vyom, Ankit & Patrick