Get Think Tanked Distilled with Mandeep Singh

Elon Musk made big news recently when it was announced he was taking a 9% stake in Twitter and getting a seat on the Board of Directors. The timing is good to bring in Mandeep Singh, the senior analyst at Bloomberg covering the internet and technology sectors, to discuss the landscape of the space to see where he’s finding opportunities today.

Singh acknowledged that he was surprised to learn that Musk had taken a position in Twitter because it really came out of nowhere. He expected to see better quarterly financial results, but this was not a catalyst that he had identified. His thinking was that Twitter’s new management team would be allowed some time to implement changes, but Musk’s new influence could change the dynamics. Perhaps this was his intention all along and he suspects we’ll learn a lot more about how he went about doing this over time.

Musk’s plan could either be coming from his personal views on free speech, bots and things like that or he could be generally interested in improving the business. He could potentially help make the business run more efficiently. His focus may be on growth, but the notion that he doesn’t care about operational performance, Singh feels, is unfair. User growth, however, has slowed, monetization is still a problem, and the ad infrastructure needs to get fixed. A possibility is that Musk talks about taking Twitter private in the same way he threatened to do with Tesla.

From a macro perspective, Singh believes that a lot of the potential impact from the Fed’s upcoming rate hike cycle is already baked into tech stocks. A lot of companies have lost about 40% of their enterprise value. Some companies will eventually revert back to double-digit growth rates and he anticipates that better conditions will eventually return. He does feel that the pendulum has swung to the other end with slower growth, but notes AirBnB as a company that has held up well even though the travel & leisure sector hasn’t fully come back.

Singh says that companies who rely less on advertising should be able to hold up better. AirBnB, for example, gets 90% of its traffic directly. The company also doesn’t have the challenge of supply acquisition. Once a property gets listed, it tends to be really sticky. They have some leverage today, while Uber and Lyft are trying to expand into other categories for growth. In the future, partnerships will be the way to go for these companies.

Where does Singh see opportunities over the next 12 months? Over the medium to long-term, he believes SaaS companies have a healthy pipeline because everybody is going to need to ramp up their cybersecurity spending. This will be a secular growth story and enterprise software could see 30-40% growth going forward. There’s been some impact on valuations during the recent pullback, but the growth story is definitely there.

Other key takeaways:

  • In terms of favorites within semiconductors, Singh notes that Nvidia has the best overall market exposure, but its valuation is 2-3 times the sector. AMD has a lot priced in. The group will probably decline over the next 12-18 months as the slowdown comes. You’ll have to be careful about what’s already being priced in. Valuations are extremely relevant.
  • Singh doesn’t think we’ll see the extreme outcome where there’s a complete shutdown of supply chains, but companies will seek diversity. That could mean that inputs aren’t as low cost as before. Margins have likely peaked in the near-term.
  • The metaverse names should continue to see growth, but some of the initial enthusiasm has faded. Companies will continue to spend on metaverse tech and virtual environments, but there could be some issues as the travel & leisure space reopens.
  • What is Singh particularly bearish on? The pandemic winners. Most of them pulled forward 2-3 years of growth and some services aren’t as relevant today. Not all of the food delivery companies are going to survive.

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