Dear Reader,
Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in tech and biotech. Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here. I always enjoy hearing from you.
Hi Jeff,
Block (SQ) is one of your favorite companies. I just read a few articles stating that there was fraud. Perhaps this is untrue, but I would like your take on this company that you have been very optimistic about its future. Thanks.
– Gordon E.
Hi, Gordon. I’d be happy to give my thoughts on Block.
To catch readers up, last month, Block was the target of an inflammatory report from Hindenburg Research, a well-known short seller.
And before we dig into the details, there’s one key thing for us to understand about companies like Hindenburg. They have a very material interest in making a stock go lower.
What firms like Hindenburg do is to build up a massive short position in a company, and then they issue research to the public to create fear, uncertainty, and doubt about that company in hopes of causes a wave of selling. And if that happens, Hindenburg will turn around and buy back the stock at much lower prices and profit at other shareholders’ expense.
Hindenburg’s report claimed that Block “dressed up predatory loans and fees as revolutionary technology and misled investors with inflated metrics.”
Bold claims. Following the release of the report on March 23, shares of Block plummeted by almost 15%.
Investors tend to put weight behind Hindenburg’s short sales. That’s because the company has uncovered real corporate malfeasance in the past. In September of 2020, the firm took a short position on Nikola (NKLA). Hindenburg alleged that Nikola had deceived investors about the progress of its technology.
And Trevor Milton—the company’s founder—was convicted of lying to investors last year. The stock, which traded for around $40 at the time of the short report, now can be bought for less than $2.
But that doesn’t mean that Hindenburg is omniscient or that they’re short predictions necessarily come true. For instance, one of Hindenburg’s accusations was that Block was inflating the number of users on its peer-to-peer platform Cash App. Block claims to have 51 million.
On the March 30, Block released Cash App numbers. They revealed they do indeed have 51 million active accounts. And 44 million accounts have verified identities. Importantly, about 97% of inflows come from those verified accounts.
Hindenburg also claims that fraud is rampant on Cash App. And while I’m sure there are probably some bad actors that do use Cash App for nefarious purposes, I think Hindenburg is overstating it.
The reality is that Cash App is simply a tool, a peer-to-peer payment platform that allows users to pay each other easily and quickly. What customers are transferring money for is not something Block can ever truly know. And the reality is that most financial fraud today is perpetrated through traditional banking infrastructure.
And Block does have safeguards in place to root out illicit activity. The company reports that 2.4% of all transactions on Cash App in 2022 were blocked to prevent fraud.
Overall, I found Block’s response to the short report convincing. And investors seem to have come to the same conclusion. The stock has regained much of its initial loss in the wake of the short report.
In today’s [Exponential Tech Investor] update on Ambarella, Jeff mentions their latest chip capability enabling higher levels of person tracking and mask detection. I realize those are factual updates and Jeff separates out his editorial writing from the companies.
I know Oculli well. I was working with them one year before Ambarella acquired them and had a call with their CEO. Their radar enabling software is really incredible.
However, I always worried that Ambarella would just speed up surveillance of the human population in transportation, so I see this use case and its process as nothing short of troubling. Vehicle in-cabin monitoring is being written into regulations across different countries.
I sit weekly and monthly in a large number of startup pitches and have seen >5000 pitches in the last 4 years. It’s remarkable how the startup universe is very much coalescing around monitoring/collecting all manner of data on every human movement, action, intention, need, etc.
It’s as if the governments are incubating some of them… In a world where we are moving toward the likes of a Chinese Social Credit system, I wish Jeff would point out that some of these use cases are not good for human freedoms.
Instead, they are written as being great progress. Not all technology progress should be celebrated.
I’m a realist and knowledgeable on what’s happening… We are not far from a CBDC. The governments, especially the US government, has been weaponized against its citizens. I will not celebrate technology progress that enables the government’s progress toward a surveillance state.
Maybe Jeff can point out the risk side of the breakthroughs as well…
Kind regards,
– Kevin M.
Hi, Kevin. I know you were responding to an update for our small-capitalization service Exponential Tech Investor. But I thought this was a great topic to share with readers of The Bleeding Edge.
To catch readers up, the company Kevin is referring to—Ambarella—specializes in machine vision and computer vision as applied to the automotive space. Ambarella, at its core, is a fabless semiconductor company upon which this technology works.
Ambarella, among other things, enables technology for “in-cabin” monitoring. In other words, the car can “see” us when we’re driving.
This could be useful in a variety of ways. For instance, the vehicle could monitor if the human driver was falling asleep and set off an alert to wake them up. That’s a great application that could prevent a crash.
One of the latest updates on Ambarella was that the company announced a new lineup of AI security products. The CV72S 4K, 5nm AI vision system-on-chip (SoC) is designed for mainstream professional security cameras capable of filming in 4K, high-definition resolution (HDR), and colored night vision.
And the systems can connect to neural networks for better “person tracking” and even the ability to detect if a person is wearing a mask or not.
Purely from an investment standpoint, this is a great development for Ambarella. It’s a new line of products that—as Kevin mentioned—could be mandated by governments sometime in the future. That means more revenue for Ambarella.
What I didn’t mention in the update—and what Kevin alluded to—is the darker side of technology like this.
I’ve been a very outspoken critic about central bank digital currencies (CBDC) and how governments around the world are going to use this new technology, and also abuse this technology to remove our freedoms and levy more draconian controls over the population, like what we experienced during the pandemic.
And I’ve also been very critical of any company that surveils a population without their consent and generates revenue from the sale of that collected data, or through selling access to that data for advertising purposes.
These are companies like Meta (Facebook, Instagram, WhatsApp), Alphabet (Google, YouTube), Microsoft (Bing, LinkedIn), and so many others. We should always remember, if the product is free, we’re the product.
And Kevin, you shared such an interesting insight that I thank all readers will benefit from. I see exactly what you’re seeing in the startup space.
So many companies gravitate towards that very same business model. They collect data and then figure out how to monetize that data. The reason for that is all about money.
If a company can figure out how to employ their technology at the widest scale possible and perform some kind of function that consumers will find useful to increase adoption, they will gladly offer the product for free, or very cheap. That’s because the real business isn’t about selling a product. The real business is about collecting and selling the data.
Companies pursue this kind of model aggressively because it can scale so quickly. And any business that can scale quickly and has a path to monetization is going to be attractive to the venture capital community. That means that startups can raise a ton of capital and potentially become very wealthy in a short period of time.
This dynamic feeds on itself.
And there are so many success stories that reinforce this kind of business model. I wish I could say that this loop could be broken, but unless there were some very strong regulations put in place that prohibit companies from collecting data from its users, I just don’t see this stopping.
And the worst part is that the U.S. government wants companies like Meta and Alphabet to thrive. Why?
Because the government wants to have unrestricted access to the data that these companies have collected on the world’s population. It is a sick, twisted, and mutually beneficial relationship that deeply violates our privacy and constitutional rights.
For those that didn’t read Wednesday’s Bleeding Edge, I encourage you to do so. I highlighted the RESTRICT Act, which is currently being contemplated by the U.S. Congress.
It is positioned as a “ban on TikTok”, but to be very clear….it is pure evil.
It is not about TikTok. It is about giving the U.S. government the unrestricted ability to hack into our home Wi-Fi networks, our computers, our smartphones, any applications that we use, our cars, etc. and surveil on anything that we have done or are doing.
And all it takes is for someone to determine that we are a very loosely defined “threat”.
During the pandemic, the world’s most published cardiologist and the inventor of mRNA technology and mRNA vaccines were labeled a “national threat” by the CDC, NIH, White House, and FBI. They were banned and censored from all forms of media, they were smeared publicly, and their careers changed forever for the worse.
So Kevin, I deeply share your concerns about how technology can be used for data collection and surveillance, and also how governments can enact laws to provide such tyrannical powers for governments to use this technology in evil ways.
As an investment analyst however, I have to remove my emotions from my research. The real question is whether or not a product or service will be adopted quickly or if it will sell well. And in the case, I suspect Ambarella’s new line of products will be.
And to be clear, a company like Ambarella is not conducting the surveillance. Companies that are purchasing Ambarella’s technology are the ones that might be using it for that purpose.
Most uses of Ambarella’s technology are for good and productive purposes; but just like most technologies, it can be used for bad purposes as well.
Apologies for the long answer, but this is such an important topic, and we have to understand the bigger picture to be well informed.
I always like to understand the motivations involved, how the money flows, what the incentives are, and who benefits regardless of which company, technology, or even individuals we are analyzing. The previous question from Gordon about Block/Hindenburg is a perfect example.
Thanks for writing in about this critical topic.
Jeff,
I’m curious. From what publicly available sources do you learn of new private tech company funding rounds?
I’m sure you have many sources including many personal contacts but was wondering about the sources available to people like me that you follow.
Thanks.
– Lonnie M.
Hi, Lonnie. It’s a good question.
As readers know, private companies are very different than public companies in that there is very little publicly available information on the progress of private companies. They are, after all, private.
And yes, I do have an extensive network that enables me to gain access to information that simply isn’t available on any public or paid-for private information service.
But there are a couple services available online that could be of interest.
The most well-known service that provides data on private companies is called Pitchbook. It’s not perfect, and it doesn’t have everything, but it is the most comprehensive resource available to private investors. My team and I use Pitchbook extensively for research.
The only downside is that it isn’t cheap. Pitchbook doesn’t really cater to individual investors and tends to sell multi-seat licenses for five figures a year.
CB Insights is another good platform, but just like Pitchbook, it is expensive and caters to enterprise customers. CB Insights leans more heavily into analytics and market maps than Pitchbook does, which can be a useful resource from time to time.
The more affordable and accessible resource for individual investors is Crunchbase. I just checked the Crunchbase website, and they offer a “starter” license targeted at individual investors for $29 a month (billed annually).
It’s not the same as Pitchbook, but for most investors wanting to keep up on private companies, it’s probably sufficient and reasonably priced.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
