November 18, 2021

Amazon eats Visa’s lunch🍴

Good morning traders,

Welcome back to The Daily Setup. Markets were in the red yesterday, while retail sales topped expectations. Here’s what’s on the docket today:

  • Rivian stock falls from glory
  • Amazon will no longer accept Visa charges from Britain
  • The Staples Center becomes Crypto.com. No, really..

So give us a read and let’s make today a good one.


StoneCo, Rivian, and Amazon fights Visa


It’s Bad, and That’s All I Have to
About That
^ StoneCo’s earnings report and Stone Cold Steve Austin…probably

Shares in Stone Cold Steve Austin took a chair to the head yester… Wait, I’m being told that’s not what $STNE is. StoneCo (STNE) saw its shares plummet during Wednesday’s trading session following their Q3 earnings announcement. The company missed big on both top and bottom line earnings estimates and dropped 34.57% on the day.

  • The Brazilian fintech reported adjusted Q3 EPS of $.08/share vs. analyst estimates of $.11/share, a decrease of 56% year-over-year.
  • They also incurred a net loss of $229M vs. Q3 2020, which saw a net income of $45.3M.
  • One of the main culprits for StoneCo’s disastrous, or as they say in Brazil, desastroso earnings report (look how much I’m teaching you), had to do with their new credit business.
  • Apparently, having weak underwriting standards and “relying on Brazil’s faulty registry system for collateralized loans” is not a recipe for success. Shocking…to absolutely no one.

StoneCo’s stock is down 75% on the year following Wednesday’s bloodbath, but at these new levels, there may be reason to be optimistic moving forward. The company has had strong double digit growth over several years, and it’s acquisition of Linx, a leading provider of retail management software in Brazil, could provide additional revenue streams.


We’re Supposed to Sell Actual


^Shockingly, there hasn’t been a Spaceballs sequel

Rivian (RIVN) had been on a tear over the past week since its IPO, but investors pressed the brakes on its hot streak on Wednesday. After Rivian’s 15% drop yesterday, it closed at $146.07, still $40 higher than its IPO price. The runup has caused the company to have a larger market cap than Ford (F) and General Motors (GM) which in a contrasting model, do in fact manufacture and sell vehicles.

  • Lack of a realistic model may finally be starting to spook investors, as Tuesday was RIVN’s first down day since the IPO.
  • The EV market is about 1% of the total vehicles on global roads, yet EV stocks have a combined market cap $1.6T while traditional automakers have a slightly lower combined value of $1.5T.
  • Tesla (TSLA) is still the big dog in the EV space with a market cap of $1T, despite Elon Musk’s penchant for announcing stock sales via Twitter.

Growth vs. Value is the metaphorical drag race here. EV growth proponents cite the low penetration into the overall automotive market coupled with industry commitments to shift more of the portfolio to electric. Traditional value types counter with the need to turn customer reservations into tangible vehicles that are built and then delivered to real drivers, like an actual business or something. EV valuations have gone stratospheric faster than a Tesla Model S’s Plaid setting, so proceed accordingly…but remember that the old adage “your mile may vary” may apply here as well.


Who’s holding all the cards here?

Amazon ramped up its efforts to eat Visa’s lunch on Wednesday with the announcement that, starting in January 2022, they’ll no longer accept Visa cards issued in Britain. We already kicked their a**es in WWII, cheerio, let’s do it again. AMZN claims that they’re punishing the credit card company for exorbitant–and rising–fees, especially considering that improved technology should be driving them down. Can’t really fault Amazon for hypocrisy on this one, since their improved employee oppression tech gave us some pretty sweet price cuts…

  • This isn’t first blood. In mid-September Amazon added a 0.5% surcharge to all purchases made in Singapore with Visa cards, and had already started offering UK users 20 pounds ($27 in real currency) off their next purchase if they set a non-Visa card as their payment default.
  • And Amazon’s got a point: in Britain, some fees paid to Mastercard and Visa doubled between 2014 and 2018 since Brexit cut the UK off from price-control protections enjoyed by the EU. Cross-border transaction fees cost UK retailers roughly $200M this year. Maybe it’s time to Breconsider?
  • AMZN’s endgame isn’t just a sick thrill (in this case). Credit card companies are facing pressure from alternative payment methods that are faster and cheaper than any credit or debit card. See buy-now-pay-later apps that facilitate direct bank-to-bank transactions like Affirm and Klarna, just to name a couple (and let’s just not even talk about crypto). Amazon may well be leveraging this weakness to extract concessions from the credit card giants in the form of reduced fees.

This hurts. Visa shares were down 4.74% on Wednesday and down 5.83% YTD, which doesn’t look great considering the 29% rise in the S&P 500 Tech Index throughout 2021. But as long as Amazon doesn’t start chipping away at the U.S. market, Visa will probably get through it. I mean, they’ve already adapted to alternative payment options by rolling out their own buy-now-pay-later feature for their cards starting in 2022. For expert advice on how to get the most credit card points, just ask comedian Dan White.

Did They Pay in Bitcoin?

Crypto Corner

The Showtime Era was still better though. Following in the footsteps of iconic sports venues such as Enron Field, Petco Park, and Ericsson Stadium, the Staples Center in Los Angeles is getting a new name. Beginning on Christmas Day the current home of the Lakers and Clippers will be named after Crypto.com thanks to a 20 year $700M sponsorship deal. Great, now your 20 year old crypto-crazy nephew will be even more insufferable.

  • Crypto.com is a cryptocurrency exchange that allows customers to buy and sell various digital assets, and currently has about 10M users.
  • Because L.A. just has to one up everyone, this deal dwarfs a similar pact from last March when the Miami Heat entered an agreement with the crypto platform FTX for 19 years and $135M. Everything truly is more expensive in California.
  • No word yet on whether the arena’s concession stands will start accepting Dogecoin. But maybe they’ll follow the Mavericks‘ lead and change that soon.

If the NBA is going all in on crypto, they really should change the Lakers and Clippers mascots to Shiba Inu dogs with laser eyes. Crypto trading platforms earn revenue via trading fees, so volumes are going to have to be high to justify such a large expense. Maybe these platforms should have started smaller, like with sponsoring college football bowl games. After all, there’s nothing like settling into the couch to watch the Poulan Weed Eater Independence Bowl.

One, two the SEC is coming for you

Rumor has it

-Cassava shorts and the little girls from Nightmare on Elm Street

Shares of embattled pharmaceutical company Cassava Sciences (SAVA) tanked Wednesday after the SEC announced an investigation into whether the company had manipulated study results for its experimental Alzheimer’s drug Simufilam. SAVA has been one of the best performing stocks this year, up a ridiculous 590%, even after Wednesday’s 23.6% drop. So what did the company allegedly do? Glad you asked…

  • According to David Bredt, a former neuroscience chief at J&J and Eli Lilly, and Geoffrey Pitt, a cardiologist and professor at Weill Cornell Medicine, said, “Cassava’s research, published in several different scientific journals, include images of experiments that appear to have been manipulated using software such as Photoshop.”
  • Oh, and as a side note, the two doctors said that they are short SAVA and have profited from the stock’s fall. ‘Merica, gotta love it.
  • Cassava CEO Remi Barbier has denied Bredt and Pitt’s allegations…obviously. The fact that they’re not referred to as Bredt Pitt is a big miss tbh.
  • The National Institutes of Health (NIH), which provided a $20M grant to Cassava, is also investigating the claims.

Two questions come to mind…or at least come to my warped mind.

  1. Why did Cassava “allegedly” use Photoshop rather than a higher end software program for its alleged manipulation?
  2. Despite the potential manipulation, does the drug actually work?

Hopefully, we’ll get some clarity, at least on the efficacy of the drug, in the coming months. I plan to keep SAVA in my watchlist for continued volatility and potential opportunities.

Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

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