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MicroStrategy, Simon Property Group, Snap, Alphabet and Facebook as Zacks Bull and Bear of the Day

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·12 min read
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For Immediate Release

Chicago, IL – November 27, 2020 – Zacks Equity Research highlights MicroStrategy MSTR as the Bull of the Day and Simon Property Group SPG as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Snap SNAP, Alphabet GOOGL and Facebook FB.

Here is a synopsis of all five stocks:

Bull of the Day:                                                 

MicroStrategy made a big bet on Bitcoin (BTC) this year, and it turns out it may have been the best decision this company's management has ever made. MicroStrategy is a cloud-based business analytics company that has stayed below investors' radars with quarterly income statements that weren't exciting anyone. CEO Michael Saylor flipped the narrative when it started purchasing Bitcoin in August.

With its enormous bitcoin purchase and a sales outlook that is looking a whole lot brighter as its licensing and subscription-based sales soars, analysts are increasingly optimistic about the future of this business, pushing MSTR into a Zacks Rank #1 (Strong Buy).

The Gold Rush in Bitcoin

MicroStrategy became the largest American corporation to invest in bitcoin as a 'store of value' when it purchased 38,250 coins between August and September for an average price of $11,111 per coin ($425 million in value), giving it the institutional seal of approval. Now fintech giants like Square and PayPal are buying up large sums of the pioneering blockchain currency.

This big institutional bid has Bitcoin soaring in the past few months. BTC was trading below $10,000 as recently as September, a price it has struggled to stay above since the end of the Crypto-Craze in the first months of 2018. Bitcoin hit resistance at its 2017 high this week and pulled back to below $17, but I don't believe this rally is over.

MicroStrategy has already netted a $286 million (68%) gain on its Bitcoin purchase in just three months, and it looks like the cryptocurrency is headed beyond $20k. I expect that more and more institutions will follow suit, adding to Bitcoins already red-hot momentum.

Saylor made a seemingly savvy business decision when he decided to store his enterprise's liquid capital in Bitcoin. He made this judgment call in the face of ultra-low interest rates that were poised to eat away at MicroStrategy's cash reserve value. Jerome Powell and the Federal Reserve are printing money like there's no tomorrow and vowing to let inflation run past its 2% target to make up for the past two decades of below-target inflation.

MicroStrategy's management team felt that gold is an antiquated store of value and that Bitcoin's blockchain-driven cryptocurrency is the future of inflation-protected assets.

The world of finance is shifting rapidly, and MicroStrategy is leading the shift towards blockchain-powered balance sheet management. Today roughly 1/3rd of MSTR's market value is derived from Bitcoin, and its share price changes have been highly correlated with BTC's price action.

I see MSTR as a hedged way to invest in the resurgence of the Crypto-Craze that I expect to continue into next year.

The Story

MicroStrategy was an unfortunate product of the late '90's tech bubble. MSTR surged over 3300% from May of 1999 to its high in early March of 2000, topping out at $3330. A year and a half later, MSTR was trading in the single digits, having lost over 99% of its peak value.

The company has been chugging along with little growth, but it appears that MicroStrategy is finally turning the heaters back on, resurging this digitally incepted enterprise back into growth. The shrewd Bitcoin purchase was just one lever exemplifying MSTR's growth potential. The business's newly released HyperIntellegence platform has been met with strong demand, and its other segments are all enjoying 2020's digital tailwind with the rapid adaptation of MicroStrategy's cloud technology. I expect that the business's resurgence into growth will continue throughout the digitally-driven Roaring 20s.

Final Thoughts

If you want to invest in the second wave of Bitcoin mania, MSTR is an excellent (hedged) way to do so. Keep in mind that these shares will still be quite correlated with BTC's highly volatile price. I would not recommend a large position in this enterprise, but it is one that is worth looking into.

Bear of the Day:

The retail apocalypse hit the fan in 2020 as foot-traffic halted and click-traffic surged. The retail sector has seen a massive divergence this year. Digital-inclined omnichannel retailers and e-commerce shopping platforms far outperformed the plummeting shares of legacy retailers.

Simon Property Group is starting to feel the adverse implications of the declining retail sector. A sizable portion of its traditional brick-and-mortar clients are reaching a breaking point. Many have been forced into bankruptcy, closing their storefronts and defaulting on their lease obligations with Simon Property.

SPG is the best-in-class real estate investment trust (REIT) for shopping, dining, and entertainment, but unfortunately, its clientele are operating in a declining industry. The post-pandemic New Normal is going to be one that is driven by click-traffic while foot-traffic falls. Analysts have been increasingly pessimistic about this business's future, dropping EPS estimates for years to come and pushing SPG into a Zacks Rank #5 (Strong Sell).

The Recent Uptick

With 2 high potential vaccines on the horizon, investors & traders are beginning to price foot-traffic back into the markets with a light at the end of the COVID tunnel. The beat-up traditional retailer space has been catching a bid in the past couple of weeks as the equity markets move up the timeline to full economic recovery.

Since Pfizer's first vaccine announcement earlier this month, SPG has jumped 41%, but is this move justified?

Despite the revived optimism about 2021, COVID cases have been surging, and we may be in for a cold economic winter, with states already beginning to lockdown again. Brick-and-mortar retailers are in for more pain before the end of the pandemic. The night is always darkest before the dawn, and this statement has never been truer than it is for traditional storefronts today.

The retail apocalypse has been occurring for the past 5 years as the ease of shopping right from your couch has reduced foot-traffic levels in malls and shopping centers. This has been devastating for mall operators like Simon Property Group, as well as department stores, many of which have filed Chapter 11 bankruptcy.

I believe that the pandemic is cleaning house. Getting rid of antiquated business models that were already on their way out and allowing well-adopted retail businesses that provide what consumers want/need to thrive.

SPG is the best-in-class REIT of a dying sector, but it will need to make some structural changes in order to adapt to the shifting consumer.

Final Thoughts

Some value investors may argue that there is still opportunity in the 'heavily discounted' department stores. Still, I'm not chasing these antiquated names unless they can flip the obsolescence narrative and adapt to the rapidly changing consumer.

Additional content:

SNAP Takes on TikTok with Spotlight Feature

Snaprecently introduced an entertainment-based feature on the Snapchat app called Spotlight, where it will highlight creative short videos from users, in an effort to compete with China-based ByteDance’s TikTok app.

Spotlight features auto-playing vertical videos, which can be swiped up or down to quickly move between clips.  It is designed to highlight entertaining videos from all users, regardless of the number of followers or influence they have.

The new feature is available in the United States, Canada, Australia, New Zealand, UK, Ireland, Norway, Sweden, Denmark, Germany, and France.

Markedly, Snap shares declined 2.1% to close on $44.29 on Nov 24, following the announcement, apparently reflecting strong competition Spotlight is expected to face from TikTok.

Snap’s shares have returned 171.3% year to date compared with the Zacks Internet - Software industry’s growth of 89.4%.

Private Accounts to Restrict Popularity of Spotlight Videos

On Snapchat, likes are private with no options for re-sharing of videos. Moreover, displaying follower numbers is optional. Without such metrics, it can be tough for Spotlight videos to get popular, thus affecting chances of users to get noticed by brands and advertisers or get hired to create sponsored content.

Additionally, Spotlight content will be moderated by human reviewers and AI before it gets to 100 views and will not be distributed further until it has passed moderation.

Snapchat user profiles are individual by default, so snaps will not be instantly pressed to a big audience. Moreover, those who share Snaps from a private account will also see their account details remain private on Spotlight. Public comments on videos are not allowed.

Nonetheless, the company confirmed that as an early incentive for users to try out the new feature, it will give over $1 million dollars every day until the end of this year to those who create the most engaging Snaps on Spotlight.

Markedly, users must be over 16 and where applicable get parental consent to be considered for the funds.

Spotlight to Intensify Competition for Peers

With over 249 million daily active users reported at the end of third-quarter 2020, Snap is looking to leverage more than 4 billion daily Snaps created by its users to power the new Spotlight feed.

Creative video-sharing has become increasingly popular on social media platforms, accelerated by the rise of TikTok, which remains one of the top apps with around 50 million daily active users (DAUs) in the United States till August.

TikTok plans to spend more than $1 billion in the next three years on video-makers in the United States. Over the weekend, TikTok saw its first creator reach 100 million followers. Charli D’Amelio has hit that mark just 18 months after she created her account.

TikTok’s success led Alphabet owned Google to add short-form videos to its YouTube app. Meanwhile, Facebook has added an equivalent function in the type of Reels for Instagram.

Instagram has been paying some of TikTok’s top stars to test out Reels. Moreover, Instagram recently started sharing revenues for the first time on video ads with creators like YouTube does.

Nonetheless, Snap is expected to intensify competition for its peers, given its strong popularity among millennials. Competition among social media apps for the attention of younger users has been intense and most notable is the case of Snapchat’s disappearing Stories feature, which has since then been introduced to LinkedIn, Facebook, Instagram and WhatsApp, among others, earlier this month.

Markedly, in the United States, Snapchat platform reaches 90% of 13-24 year-olds, which is more than Facebook, Instagram and Messenger combined. It also reaches 75% of all 13 to 34-year-olds and more than 4 billion Snaps are created every day on an average.

Moreover, with the music licensing aspect handled by this Zacks Rank #3 (Hold) company’s multi-year licensing agreements with several major record labels including Warner Music Group, Universal Music Publishing Group, Warner Chappell Music, Kobalt and BMG Music Publishing, the Spotlight feature is expected to gain popularity soon.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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