3 Charts: IPO Nightmare And The Downside To Record Highs
Wall Street Daily | May 05, 2017 07:05AM ET
If you’re new to the Wall Street Daily Nation, here’s the rundown…
On Fridays, I embrace the adage that “a picture is worth a thousand words” and hand-select compelling graphics to put recent investment news into perspective.
All it takes is a quick glance and you’ll be up to speed.
This time, we’re sharing a fresh reminder why you should avoid Wall Street’s hottest IPOs, the single most important data point for Amazon and why it sucks to be a short seller right now. Enjoy!
h2 Momma Told Me There’d Be IPOs Like This/h2Once dubbed “the most interesting tech IPO of the year” by Quartz, cloud communications company Twilio Inc (NYSE:TWLO) just crashed and burned.
You’ll recall the company provides tools to send texts for the largest Silicon Valley apps, including Uber, WhatsApp, Box and Zendesk.
And when everyone was getting hot and bothered about Twilio’s IPO last June, I warned about the company’s customer concentration.
Sure enough, it came back to bite the company.
On this week’s conference call, CEO Jeff Lawson revealed one of the company’s largest customers, which was later confirmed to be Uber, is decreasing its usage. Dramatically.
Uber once accounted for 17% of Twilio’s revenue. But the contribution dropped to 12% in the most recent quarter, and Lawson “expects contributions to decline further.”
Facebook’s WhatsApp is another double-digit contributor, too. If it decides to reduce Twilio usage, look out below!
Of course, Twilio is just one of the many “hot IPOs” we warned about here — including Groupon Inc (NASDAQ:GRPN), Twitter Inc (NYSE:TWTR), Zynga Inc (NASDAQ:ZNGA) and Fitbit Inc (NYSE:FIT).
Here’s the key takeaway: The more enthusiastic Wall Street gets about an upcoming IPO, the more you should consider running the other direction. As we shared in early March, the most hyped offerings tend to fare the worst.
h2 The Surprising Source of Amazon’s Profits/h2In previous updates, I’ve highlighted the voracious pace at which online retailing giant Amazon.com Inc. (NASDAQ:AMZN) is gobbling up the competition.
- In February, I shared that Amazon accounted for a whopping 43% of all online retail sales in 2016 — up from 33% in 2015 and 25% in 2012.
- In March, I shared the impact of Amazon’s increasing dominance — a wave of more than 3,500 retail store closings.
Get The News You Want
Against this backdrop, you’d think that retail sales generate most of Amazon’s profits. But think again!
The company’s cloud computing division, AWS, which only accounts for 10% of total revenue, generates nearly 90% of the company’s operating income.
Now you know why analysts pay so much attention to growth for this “tiny” segment!
As I shared on a recent appearance on , AWS posted solid growth of 43%. Translation: Short Amazon at your own peril.
Speaking of shorting…
h2 Lots of Pain and No Gain/h2With all three major U.S. stock markets hovering at all-time highs, there should be nothing but rejoicing by investors. That is, unless you’re a short seller.
The latest analysis from Goldman Sachs reveals that the market’s most heavily shorted stocks have risen to their highest level since August 2015.
In other words, short sellers are getting clobbered by these names.
Interestingly, though, they’re not about to surrender. The data show that the proportion of shares borrowed to sell short on U.S. exchanges is climbing.
This doesn’t surprise me, either. While some people characterize short selling as un-American, I’ve found that short sellers do the most thorough research. And they’re willing to hang tight until they’re proven right.
That means if you’re invested in a stock that’s heavily being shorted, you better make sure you’ve done your homework, too. As we all know, the tables can turn quickly on Wall Street.
Original post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.