Stocks Really Breakout, A Look At Roku, Where Does Oil Go
Michael Kramer and the clients of Mott Capital own shares of TSLA, GOOGL, NFLX
The S&P 500 was in rally mode, and it was a strong day across the board. Biotech, Tech, Financials, along with Energy. The setup in the S&P 500 continues to remain very strong, and I think we may have just broken out.
In fact, the relative strength index is also showing signs of breaking out, and it would take a rise to about 60 on the RSI to confirm the bullish move.I’d like to see another strong trading day tomorrow, to prove today’s rise was real and give the index some breathing room. But the underlying sector charts are looking reasonably healthy as well.
We can see the same setup in the chart of the technology ETF (XLK), along with a strong setup in the RSI.
Alphabet shares appear to be breaking out, and I noted in an article earlier today on Investopedia, I think it might rise to around $1150.
Netflix appears to be on its way towards $340.
It isn’t much different in some of the semis either. It was Monday I wrote that Micron was in the final phases of a descending wedge, and sure enough it broke out today, $54 appears to be next.
Tesla is on the doorsteps of a significant breakout as well, currently trading around $310, which could send shares higher on towards $330. In case you missed it, California voted to have all new houses equipped with rooftop solar panels.
Biotechs are also looking relatively strong as well, and I still think that the group can continue to work higher. I know there is nervousness about this drug pricing speech that is now coming on Friday. But I have been saying since 2016, that I think any policy on drug pricing comes in the form of a quicker approval process, to increase competition. I don’t see it happening through price controls.
Well, Oil is within 4 points of my $75 target, which by the way I called late last year. I have been thinking about where it goes from here. I do not see it going much higher in the short-term. In fact, if I were a betting man, I’d say we see $60 before we see $80.
I hope everyone realizes once Oil stops rising the whole inflation narrative will disappear too? Right? I’m talking to myself; Of course, they don’t.
So, I have to say that the Roku’s numbers look solid on the surface, two things stand out as concerns to me. Player revenue fell 3 percent from last year, and I guess that revenue will continue to decline. Which means the revenue numbers you are left to truly rely on to drive that future growth is just the platform.
Also, I’m curious as to why platform revenue fell sequentially, to $75 million from $85 million? Interesting. Platform gross profit margins also fell both from last year and sequentially, to 71.1 percent from 77.1 and 74.6 percent, respectively.
Additionally, the rate of net additions fell in the quarter.
The ARPU numbers are reported in a weird way, I’m not all that familiar with the style. The company takes the average number of users in the 1Q’18 and 1Q’17 and then sums up total revenue for Q2, Q3, Q4, and Q1’18. They then divide that revenue total, by the average number of subscribers to get ARPU. By the way, I had to look in the IPO prospectus to figure that out! But the number of subscribers in the 1Q’17 was only 14.2 million, so it makes the average way too low. It gives an average of 17.5 million accounts, on total platform revenue of $264 million, giving you an ARPU of $15.09, some rounding in there.
But do just a straight ARPU calculation of (Revenue/Users)/3 months, and you get $1.20 in the quarter, down from $1.47 the previous quarter. I dunno. You be the judge.
Anyway, the stock is trading pretty much where I predicted it would at $37. So where it goes from here is anyone’s guess.
That is enough.
Mott Capital’s Reading The Markets – An In-depth Global Macro Stock Market Commentary – In Video Format – See How Michael Dissects The Markets
Free Articles Written By Mike:
Join our 611 Daily Subscribers And Get This Commentary In Your E-Mail! Subscribe
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
© 2018 Mott Capital Management, LLC. Use, publication or reproduction in any media prohibited without the permission of the copyright holder.