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The World has changed.
Every so often throughout the course of history, those black swan events occur that change our daily discourse. They change what we believe to be true, the way we act, the way interact, and the way we think.
On a global basis, the Coronavirus has been one of the most significant disruptions since the Second World War. So far, there have been 300M cases and 5.5M deaths… and rising. The most significant impact however, is economic and social. Never before in the course of history have nations been more intertwined and economies been more globalized. A shutdown of anything can impact everything.
In a world where physical interaction is limited, in order to seek social solace, interaction shifts to an online presence in order to keep everyone safe.
A massive amount of fiscal stimulus has shifted consumption patterns within a supply chain network that cannot keep up.
How individuals, companies, and governments adapt and evolve over the coming decade will shape the world until the next black swan event comes along.
So we better get it right. We need to take care of each other, the planet, and implement human ingenuity to come out the other side better than the way in.
In this changing environment, investment theses also have to evolve to grow with the new normal. In this issue, I highlight the top themes I’m focused on for the coming year.
This week, in <5 minutes, we’ll cover my top 5 themes in 2022:
Renewable Energy 👉 Too Many Tailwinds to Ignore
The Metaverse 👉 Persistent, Digital, New Economies
Web 3.0 👉 Bitcoin and Fortnite Skins as the “Gateway Drug”
Software 👉 Almost Time to BTFD
Payments 👉 A Woeful Year for Visa, Mastercard, and Square
How GRIT’s Playing it 👉 New Private Deals on Deck
Let’s get started!
Top 5 Themes For 2022
1. Renewable Energy 👉 Too Many Tailwinds to Ignore
There are few times where you can make money while also doing the most “good” for the most people. This is one of those times. Renewable energy isn’t some hippy science project anymore. This is real world change happening on a basis that is finally attractive from a unit-economic basis. If you look at the Levelized cost of energy, it made sense that coal was used for so long because it was cheaper.
It’s impossible to ignore the plummeting cost of renewables. But since the sun doesnt always shine and the wind doesn’t always blow, you need storage to make this a viable long-term solution. If only there was a matching cost curve…
If you were in the camp of “if it doesn’t make dollars it doesn’t make sense,” you’re now officially out of excuses for being against renewables.
The IEA issued a report at the end of November that stated 95% of all new electrical generating capacity over the next 5 years will be renewable. “This is equivalent to the current global power capacity of fossil fuels and nuclear combined,” the IEA said in the report.
Yet even then, the world will need to double the rate at which it adds renewable power in the next five years to remain on track to reach net zero by 2050. To keep pace with variable wind and solar power, energy storage will have to nearly double as well. The world can’t just add more renewable power—it has to replace existing fossil fuel plants as well.
In the next five years, the IEA expects that the construction of new energy storage capacity will double. By 2026, the world will be able to store 12 TWh of electricity, enough to power New Zealand for about four months.
Global wind capacity additions increased more than 90% in 2020 and will continue to grow 50% faster than previous years.
Annual growth in China’s renewables market will slowdown following the expansion that resulted from developers rushing to complete projects before subsidy phase-outs. However, the rest of the world compensates for China’s slowdown and maintains the pace of renewables expansion.
Europe’s capacity growth accelerates thanks to further policy support and a booming corporate PPA market as PV costs continue to decline.
Under the Radar
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CELLULAR AGRICULTURE. More than one third of global greenhouse gas emissions can be linked directly to the way we produce, process, and package food. This means something has got to change! CULT Food Science is leading the way by giving investors ground floor access to the most disruptive startups in cellular agriculture*!
REVOLUTIONIZING ONLINE GAMING. Online betting and sports & gambling media/entertainment are 2 of the fastest growing segments in the gaming industry. Rivalry is already the most engaged esports betting brand in the world, and now they’re literally creating a new category of online gaming with Rushlane: a Massively Multiplayer Online Gambling Game (MMOGG)*!
THE LOOK OF HEALING. How do you maximize healing and create the ideal set & setting for psychedelic medicine? You team up with DesignAgency out of Toronto to create a new clinic design concept for your innovative mental health clinics. Read about it here*.
BETTER HEALTHCARE OUTCOMES. CloudMD is leveraging its proprietary technology and patented integrated health platform to improve health outcomes. Through its connected, comprehensive approach, CloudMD is able to provide data driven outcomes in real time. In a recent program with Sun Life, some incredible results were achieved including: 89% of those experiencing depression and 91% of those experiencing anxiety noticed ‘major improvements; 82% said they would recommend the service based on their own experience; 46% increase in plan members utilizing their mental health benefits for the first time. CloudMD has also onboarded over 560,000 individuals on its comprehensive platform, so the results speak for themselves*!
EARLY STAGE ACCESS. How do you get access to potential 25x growth opportunities without looking for a needle in a haystack? Invest in the company that’s breeding the next big tech giants! Victory Square is a technology accelerator that is ushering in a new breed of companies representing the future of tech. Investors get ground-floor access to 25 game-changing startups from around the world*!
WORLD’S LARGEST PLANT-BASED ONLINE MARKETPLACE: During the pandemic, online grocery sales grew 54.0% in 2020 to reach $95.82 billion. Vejii is a digital powerhouse that’s built for rapid scale! Their infrastructure of data, tech, marketing, and logistics is giving ethically-aligned buyers access to the world’s largest selection of plant-based and sustainable-living products online*!
*This is sponsored advertising content.
2. The Metaverse 👉 Persistent, Digital, New Economies
There’s no escaping this newly minted term. Essentially the metaverse is a digital-native medium whereby economies and identities interact in a new forum. It’s at the center of a concept called convergence whereby intellectual property is blurred across TV, movies, and video games.
In a world where everyone is forced to stay home, this concept really took off, but the more interesting component is when we see companies like Sky Maven (Axie Infinity) and Roblox build entire sub-economies within these digital sandboxes. It fundamentally changes what the nature of “work” looks like.
But how do we play it?
When Facebook became Meta, Zuck lit the fire underneath what nerds on Twitter have been fighting over for years. FinTwit in an interesting place where people like to jump all over what is/is not a metaverse. I think the best answer is no one knows what it is yet.
The best writing, hands down on the matter is Matthew Ball’s framework for the metaverse which Zuck even came out and said was essential reading during his interview with Matt post name-change.
The guys over at Roundhill (ETF Providers) even got ahead of this trend by launching a product in partnership with Ball. This ETF is positioned as a basket-approach to owning different components of the metaverse.
The AUM was somewhat sideways to start, but once the Facebook name change happened, the money poured in.
Awesome story with awesome guys behind it. Glad to see this success.
3. Web 3 👉 Bitcoin and Fortnite Skins as the “Gateway Drug”
Every twitter thread over at a16z these days seems to start: “I’m all in on Web 3.0 and HERE is why 🧵 👇…”
I’ll first start with why I think the concept has a lot of staying power, but I will balance the point of view with a rational long-time tech investor lens.
Web 3.0 is the successor to Web 2.0 (Social - Facebook, Snapchat, Instagram, YouTube) and Web 1.0 (Search - Google). It is all about giving the power (data) back to the people.
The early days of Web 1.0 can be seen as packet switching, storage, and networks which then evolved to discovery and search. Once we had the basics down, Web 2.0 essentially formed as an aggregator of eyeballs. Since the product itself was free, companies monetized in an extremely high margin manner, through selling ads. The more the platform knew about a user, the more targeted the ad was, which enable Facebook to increase conversion rates more effectively than any advertiser in history.
But the famous saying goes - “If the product is free, you are the product.” A litany of privacy issues came up through Cambridge Analytica etc… which saw some pretty wild stuff going on in terms of just how invasive the profile-building of users was. This is where Web 3.0 comes in - to create a decentralized ecosystem that focuses on data ownership that remains with the individual.
The concept of decentralized systems should ring a bell when it comes to talking about crypto and the concept of “power back to the people” should remind you of why NFTs exist (to accrue more value to creators and collectors).
However, there are still areas that I think need to be addressed: discoverability and technical aspects. When it comes to discoverability, creators are able to reach such a wide audience because of the large platform players. The creator economy is shifting from YouTube/Facebook/Instagram to more direct monetization platforms like Twitch and Only Fans. But Twitch and OF are still by very nature platforms. Platforms serve as aggregators that lead to discovery. Without platforms, how will you find these “decentralized creators”?
The second aspect is technical. Facebook, Amazon, and Google each spend tens of billions every year building out the infrastructure to support the gathering and analysis of data. How is this going to be done in Web 3.0?
I see my issues with Web 3.0 more as opportunities to be solved rather than fundamental roadblocks and am bullish on the long-term trend.
4. Software 👉 Almost Time to BTFD
We’ve had an absolutely dreadful start to the year when it comes to growth software stocks. There’s blood in the streets due to fears that tapering will accelerate which leads to lower liquidity and higher interest rates - both very detrimental to tech.
The change in sentiment can be best reflected in this chart which shows the EV/Revenue multiple contraction.
For those long-time readers, I have covered in detail why I love these boring, mission-critical, free-cash flow generating, zero-debt compounders. The trends of digital transformation have only accelerated over the course of COVID but the market does not blindly march up. You can have as much conviction in the world on the fundamental of companies but unless you study history and pay attention to the macro environment, your news streams become an echo chamber.
I truly believe over the next couple weeks we will have the buying opportunity of the decade in some of these names. However, there is still multiple contraction to go. I would get into the free-cash flow compounders at this stage (Microsoft, Adobe, ServiceNow, etc…) while waiting for a bottom. Then its time to slam on the gas on the high-growth names like Crowdstrike, Snowflake, Datadog, and MongoDB.
5. Payments 👉 A Woeful Year for Visa, Mastercard, and Square
The payment industry really hit a snag in 2021.
After being some of the best capital compounders with a near cartel-like duopoly, Visa and Mastercard underperformed the broad S&P 500 by 28% and 24% respectively. I thought payment companies just went up and to the right? So what happened?
The main indicator of transaction volume has historically been GDP growth. With entire economies and supply chains getting whipped around, a transaction-based business can experience a lot of volatility. On top of this, regulators started to enter the picture when it comes to these fancy buy-now-pay-later (BNPL) products which can end pretty ugly for the consumer.
Ontop of this, you have whole new technologies that are coming in to potentially disrupt the incumbents whether it’s Stripe (RIP Visa Acquisition) or another Silicon Valley buzzword favourite: DeFi.
But at the end of the day, Visa and Mastercard are two of the most durable businesses in the world and seem to be able to adapt to competition as it enters by acquiring these components of the business which slot in well on the legacy side. I think a great approach here is owning a bulk in V and MA while having an option on the high growth disruptors in the space: SQ, MQ, PYPL. If Stripe ever goes public, step in there and buy with two hands.
I believe that 2022 will be a stock pickers market. After sorting through the spec tech wreck, there will be some solid long-term ideas in there that are now on sale for a fraction of the price from their 52-week-highs. However, we do have now a higher for longer rate environment ahead of us which proves difficult for any asset class pushing their cash flows into the future. For now, stick with the free cash flow compounders with the barbell strategy of growth attached.
While it’s easy to get caught up in the big picture ideas - remember that valuation also matters and as always, do the work.
Until next time. Always Yours. Incessantly Chasing ROI,
-Genevieve Roch-Decter, CFA
What Else We Grittin’ On?
NEW EATS OLD. Fanatics has acquired Topps trading cards for $500M. A year ago Topps was planning a $1.3B SPAC.
FOOL ME ONCE. Adam Neumann, the brains behind WeWorks, wants to become an apartment mogul. Nuemann is using his own funds for this one.
HOT WHEELS. Ford plans to double production of its F-150 Lightning and GM counters by revealing its own electric Chevy Silverado. Watch out, Tesla!
REAL BORED APES PLEASE STAND UP. Marshal Mathers (or Eminem) joins the Bored Ape Yacht Club with a $460k NFT purchase. The NFT has been nicknamed the EminApe.
HUGE CRYPTO INFLOWS. Institutional cryptocurrency investment funds saw $9.3B in inflows in 2021. Crypto investment managers now have $62.5B in AUM.
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