Stock Notes: Tesla’s $1.5B Bitcoin Purchase

Tesla (TSLA)

In a 10K filing this week, Tesla revealed it has changed its investment policy on cash:

In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity. As part of the policy, which was duly approved by the Audit Committee of our Board of Directors, we may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future. Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy and may acquire and hold digital assets from time to time or long-term. Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.

Tesla 10K

Tesla’s corporate treasury is turning a non-performing asset (the US dollar) to a performing asset. According to @michael_saylor, the money supply is expanding at 15% or more. And they expect that to happen for the next 4-8 years. So for companies that are cash rich like Tesla, treasury departments across corporate America has a problem with a dilutive asset on their balance sheet.

But I think there’s more to adding Bitcoin for cash diversification purposes.

Oil is denominated in the US dollar. This is known as the petrodollar. There are two headwinds when it comes to the petrodollar. One, everyone is moving to clean energy which is reducing oil consumption. And two, the US monetary policy is weakening the US dollar. In the future, as nations generate their own clean energy, the reliance on carrying the US dollar to purchase oil will diminish.

So could this be the beginning of a new reserve currency for energy?

I think so. I believe the future of energy will not be denominated in the US dollar. And I believe Elon is creating a future where the future energy market (Tesla’s Autobidder marketplace) is denominated in Bitcoin. And if I’m correct, the $1.5 billion purchase is just the beginning. 🧐

TSLA Stock Chart

The market did not respond favorably to the Bitcoin news this week.

I believe Tesla is in another 2-3 month consolidation cycle. I believe Tesla will fall to the 50 day moving average line (in blue) before we see another breakout and a new high. I tend to add to my positions along the 50 day moving average lines, which serves as a support for many high growth companies.

Cloudflare (NET)

In last’s week update, I was expecting the following:

  • Sustained 50% CAGR in revenue (+$287M in Q3 2020) - 👍🏼
  • Sustained 68% CAGR of enterprise customer base (+736 in Q3 2020) - 👍🏼
  • Maintain healthy gross margins (77.3% in Q3 2020) - 👍🏼
  • Improved net cash flow from operations (+$2M in Q3 2020) - 👎🏼
  • Increased adoption in their Cloudflare One enterprise product - 👍🏼
  • Increased adoption of their Workers developers product- 👍🏼

It was another consistent quarter for Cloudflare. 2021 operating margins are being impacted by expansion. Otherwise, Cloudflare is keeping pace with its ~50% CAGR in revenue, growth in customer base, and new products.

In my next post, I will summarize Cloudflare’s investor day 2021.

NET Stock Chart

Cloudflare rarely has earnings pop. Post earnings, Cloudflare’s stock price settled on the 20 day moving average line on high volume. Like Tesla, I believe it will find support on the 50 day moving average before it picks up steam again. I’ve been wanting to trim a bit of my cash position, but my emotions are getting the best of me. I hope to sell into strength next time. 😅