Stocks Living On Cloud 9

Living In The Cloud

Stock market had a rough day on Wednesday, but the cloud stocks did well again. This market is in the clouds. If you don’t own a big tech stock or a SAAS stock, your portfolio is likely underperforming. This situation reminds me of 2007 and 2008 when the agriculture and energy stocks skyrocketed. The market had bad breadth. 

Those were the only stocks doing well. Now we are in a recession in which the cloud stocks are leading the charge. CLOU ETF was up 2.47% on Wednesday and is up 21.58% in the past 6 months. It’s down just 2.56% from its record high.

If you follow Boeing, then you think the economy is in a depression. If you follow Twilio, you think this is the best economy ever. Many of these companies don’t make profits which allows some to say the economy can tank while these do well. Some of these companies, such as ServiceNow, sell mission critical services that won’t be undone. However, every company will be hit if the economy stays terrible. These stocks are simply too high.

To be clear, while these internet stocks are on fire, they likely won't suffer the same fate as the stocks like Potash and Mosaic did in the last recession. Mosaic fell over 80% quickly. Commodity stocks usually have no sustainable competitive advantage. 

On the other hand, it’s silly to think all these cloud stocks are going to do well without competing with each other. There isn’t unlimited market share to go around. Many won’t do well. Now is not the time to be investing in cloud stocks. Look anywhere else in the market for value.

Shopify & Twilio Rally On Hype

We have been waiting for Shopify to be the largest company in Canada. That has historically been a terrible signal for whichever non-bank stock moves to the top. Shopify is a good business, but its stock is too expensive. It’s up 128% since March 16th as it rose 6.9% on Wednesday. The firm reported adjusted earnings of 19 cents which was above last year’s 6 cents. 

It had $470 million in revenues which increased 47%. Those results beat estimates for a loss of 19 cents and revenues of $443.2 million. The firm had a 62% increase in new stores created from March 13th to April 24th. The stock was down 0.28% after hours.

Twilio stock increased 24.18% after hours as it reported solid results. It had 6 cents in adjusted EPS which beat estimates for a loss of 11 cents. Revenues were up 57% to $364.9 million. Twilio had 190,000 active customer accounts which beat estimates for 185,595.

Details Of Wednesday’s Selloff

Wednesday was a bad day for most stocks outside of tech. S&P 500 fell 0.7% and the Russell 2000 fell 0.82%. Nasdaq increased 0.51%. AAII investor sentiment survey was shocking. It shows there was a 6.9% decrease in bulls to 23.7% which is 14.3% below average. You’d think with this rally that more people are getting bullish. They are actually scared of high valuations. I’m personally bullish on non-tech stocks. 

Percentage of bears rose an astounding 8.6% to 52.7% which is near the bear market peak. It’s remarkable that stocks have done so well in the past 6 weeks, yet investors are skeptical. The market has climbed the proverbial wall of worry. CNN fear and greed index fell 3 points to 40 which is fear. Recognize that when investors buy cloud stocks, they are actually hiding from the cyclical economy. Even though it's argueable that they are impacted by the economy and too expensive.

It’s no surprise on Wednesday the best sectors were tech and consumer discretionary. They were the only ones positive as they increased 0.71% and 0.31%. Amazon was up 1.44% and is about 5% off its record high last week. Worst sectors were utilities, energy, and financials which fell 3.51%, 2.63%, and 2.31%. 

Even though oil is back in the low 20s after skirting that negative reading, the energy sector has been weak. XLE energy ETF is down about 7% from April 29th. OIH oil services ETF was down 4.42% on Thursday and is down 14.38% from April 29th.

Lyft Stock Explodes After Reporting Another Loss

As you can see from the chart below, 39% of consumers plan to use rideshares less often when the economy reopens. 49% said they will increase use of their own car. With that negative backdrop, Lyft reported earnings that caused its stock to spike 16.39% after hours. What were the great numbers reported you ask? The firm lost $1.31 per share which missed estimates for a loss of 62 cents. That doesn’t sound good.

The firm had revenues of $955.7 million which beat estimates for $893 million. There were 21.2 million actives riders; revenue per active rider was $45.06. GAAP net losses increased from $356 million last quarter to $398 million. Active riders were up 3% despite COVID-19. Rides were down 75% yearly in April and 70% last week. This company is doing badly and it is losing gobs of money. 

Due to this, it announced a 17% layoff which accounts for 1,000 people. It is furloughing 300 others. Lyft is desperately trying to invest in autonomous driving to make up for its failed business model. The firm stated, “Our investments in AV are critical to Lyft’s future and we expect they’ll deliver strong returns in the future despite COVID.”


Cloud tech stocks are doing really well as evidenced by Twilio’s massive rally after hours. This situation has gotten out of hand. They are so big that they can take down the market. 

Investors foresee double digit daily declines in the worst of these names. Companies that don’t make money will be sold off hard in the next few weeks. Companies like Amazon and Microsoft will be hit moderately. Attachments area

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  • Paul Plsek

    May 7, 2020

    John: I'm a regular reader of TheoDark and I want to say thank you for your efforts on this very informative newsletter. 🙂 I had to laugh at the graphic in today's issue that seems to indicates that 1/3 to 1/2 of people surveyed plan to use public transport and taxi/ride-share services less than before when we go back to whatever normal is. Instead, they plan to increase the use of their personal car. Clearly, this information bodes ill for companies like Lyft; as the graphics headline proclaims "Americans Stay Away from Ride Sharing..." But this survey was taken among people who had logged into the website -- presumably for the specific purpose of buying a new or used car. I think that a pretty biased sample, don't you? LOL. As the saying goes, "There are lies, damned lies, and statistics." :-). Best, Paul

  • markps

    May 7, 2020

    Interesting food for thought!