Stock Notes for 12/12/20

Wiping the cobwebs off this blog 🕸

After years of texting my inner circle of friends on my excitement over stocks, I finally came to the realization that I should write my thoughts on this unused blog. In what I hope will be a weekly series, I’ll be using this blog as an outlet for my enthusiasm of companies that I follow and serve as a historical reference on what I was thinking of XYZ stock in the event of a market sell off.

As always, this information is for educational/entertainment purpose only.

Do your homework. 🙂

Square (SQ)

George Whitridge, formerly of Square and Ark Invest, tweets…

When I began investing in Square in 2016, I thought this was a possibility. In my original thesis, I believed Square could somehow bypass Visa’s interchange fees if the Cash Card was used at a Square merchant. Of course, the idea was unlikely because Visa’s logo was on the card. Fast forward to 2020, I think Square has finally found a way to bypass Visa’s payment network by using QR codes instead in a feature they call Cash by Cash App.

This is a significant development because when a payment is made between a Cash App user and Square merchant, money does not leave the Square ecosystem. 🤯

As George noted, Square has the option to continue to charge the ~2% fee to merchants and pocket it or lower the fee to incentivize companies to encourage Cash by Cash App usage. I believe Square could take the radical step of eliminating the merchant transaction fee altogether. This would mimic same as cash transactions, which would incentivize cash-only merchants operating on tiny margins to join the Square ecosystem, and eliminate pesky chargebacks (a consumer protection benefit in debit and credit card transactions).

Lastly, as Cash by Cash App usage increases between Cash App users and Square merchants, Cash App’s boost program can be used as part of a merchant’s loyalty rewards program. As a result, this would closely align Cash by Cash App to Starbuck’s in-app payment model, which uses a QR code for payments and in-app incentives. Other apps like WeChat and AliPay comes to mind, but I do not entirely know the mechanics behind those apps.

In other news, Square is going green, net zero carbon by 2030.

Cloudflare (NET)

This week, Cloudflare announced a slew of new products and protocols that focused on privacy and compliance.

The most compelling new product is their data localization suite, which uses their existing durable objects product, but with an added ability to apply jurisdictional restrictions:

Durable Objects provide globally consistent state and coordination to serverless applications running on the Cloudflare Workers platform. Jurisdiction Restrictions will make it possible for users to ensure that their Durable Objects do not store data or run outside of a given jurisdiction—making it trivially simple to build applications that combine global performance with local compliance. With automatic migration of Durable Objects, adapting to new rules will be as simple as adding a tag to a set of Durable Objects.

John Graham-Cumming, Introducing the Cloudflare Data Localization Suite

From experience, this is significant especially for enterprise companies who struggle meeting data localization regulatory requirements.

Regulatory requirements include but not limited to:

Traditionally, app teams struggling to meet the above requirements resort to inefficient and costly methods like managing multiple applications in regions that they operate in:

…we know that customers are also struggling to use existing, traditional cloud systems to manage their data locality needs. Existing platforms may allow code or data to be deployed to a specific region, but having copies of applications in each region, and managing state across each of them, can be challenging at best (or impossible at worst).

John Graham-Cumming, Introducing the Cloudflare Data Localization Suite

With Cloudflare’s data localization suite, app teams can avoid overspending in cloud infrastructure.

In other news, Cloudflare is keeping virtual workers honest through a new product they call Workplace Records. Since Cloudflare knows the location of where virtual workers are logging in from, they are able to provide automated reporting for payroll tax-reporting purposes. This means that a virtual worker who lives in a state income tax free state like Washington can no longer work virtually from Hawaii and avoid state income taxes. 😎

I am glad that Cloudflare listens to customer pain points and provides an ecosystem so sticky that makes it a difficult proposition to leave.

Tesla (TSLA)

Tesla is raising $5 billion through share issuance for “general corporate purposes”:

We may issue and sell shares of our common stock having aggregate sales proceeds of up to $5.0 billion from time to time. Because there is no minimum offering amount required as a condition to close this offering, the actual total public offering amount, commissions and proceeds to us, if any, are not determinable at this time.

We currently intend to use the net proceeds from this offering to further strengthen our balance sheet, as well as for general corporate purposes. Pending use of the proceeds as described above, we intend to invest the proceeds in high-grade investments, highly liquid cash equivalents or United States government securities, subject to applicable regulatory restrictions.

Tesla, SEC Filing

This share issuance results in less than 1% in share dilution for shareholders, which I don’t see as a problem. In the long run, this minor dilution will reap rewards as that $5 billion is invested in building new factories, R&D, and general world domination. That $5 billion raise will also contribute to the demise of legacy automakers. 😈

In other news, Tesla’s stock took a beating this week due to a few downgrades. As I watch my own unrealized loss, I couldn’t help but think of the relativity of my paper loss compared to someone who has over $7 million worth in Tesla stock.

It puts things in perspective at the cost of Jason’s. 😅

The great thing about the Tesla retail investor community is that this unrealized paper loss event is normalized. For investors new to the game, a key fundamental lesson to learn is controlling emotions to prevent panic selling. By being transparent about his paper losses, Jason is doing a great service to new investors by showing strength in times of market turmoil. 🙂