The current valuation of Enphase Energy (ENPH) presents a compelling opportunity to invest in a highly profitable company within the renewable energy sector.  In contrast to the solar panel industry, which often resembles a commoditized market, Enphase operates in the inverter segment, characterized by high barriers to entry.  Enphase and SolarEdge together have 90% market share with Enphase holding 48%, which continues to expand annually.  It has built a strong reputation for delivering reliable, efficient, and customer-centric product and service that translated into impressive financial performance, including 65% annual revenue growth, 45% gross margin, and 30% operating margin. These metrics make Enphase a great investing opportunity.

Despite these achievements and strong fundamentals, ENPH’s share price has experienced a 60% decline year-over-year, primarily due to external factors like high-interest rate and the introduction of California’s NEM 3.0 regulation.  These factors have dramatically affected demand in recent months, but I anticipate a resurgence as homeowners face increasing utility bills and moderation in interest rate.  Moreover, if the stock does not see a significant upward revaluation, ENPH can leverage its strong free cash flow generation to repurchase shares at favorable prices.

Change in California incentive program

On April 15, 2023, California introduced a major change to how homeowners are compensated for excess solar energy generation.  Under the prior policy, NEM 2.0, surplus energy generated during the day was sold to utility companies at the same rate homeowners would normally pay for electricity.  This incentivized customers to maximize their solar generation and export any excess for compensation, resulting in a 4-5 year payback period—the time it takes for solar owners to recover their investment—for solar systems. 

However, the new policy NEM 3.0, which came into effect on April 15, 2023, reduces this compensation by 75%.  It provides less credit to homeowners for selling energy during off-peak hours when solar generation is high and more credit during peak hours when solar energy isn’t generated.  As a result, the payback period for a standard solar-only system now extends to 8-9 years, doubling the payback period.

Furthermore, those who obtained permits before April 15th are grandfathered into the more favorable NEM 2.0 terms.  This led many homeowners to expedite their solar installations in the first half of the year, causing a significant drop in demand in the latter half.   To compound matters, interest rates have reached a 20 year high, further impacting the financial calculations of solar. 

Also, under NEM 3.0, homeowners now need to consider batteries to optimize savings.  With a solar + battery system, excess energy can be stored during the day and be used in the evening, or it can be pushed back to the grid during peak hours when export rates are at their highest.  However, a standard-sized battery would add approximately $10k in upfront costs to a solar-only system of $20k.

Although NEM 3.0 is specific to California, the state’s status as the largest solar market means its decisions could influence other states to adopt similar measures. 

This combination of factors—pre-NEM 3.0 installation rush, higher initial costs due to battery storage, and increasing interest rates—resulted in a significant drop in residential solar demand.  And this market dynamic coincided with easing of supply chain issues, leading to an accumulation of inventory in the ecosystem, affecting Enphase’s revenue growth in 3Q23. 

However, I think this is about to change.  Global utility rates are expected to continue increasing, which would enhance the benefits of solar panels and shorten the payback period.  For example, PG&E plans to increase electricity bills by 13% in 2024, and Southern California Edison has proposed a substantial rate increase of 45% through 2028 over already approved rates.  Additionally, interest rates appear to have peaked, with the 10-year treasury decreasing 100 bps in the past 2 months and the Fed forecasting three rate cuts in 2024.  These two factors should stimulate demand for ENPH once again. 

Competitive Advantage

In the US residential solar industry, Enphase and SolarEdge are the two leading companies, holding a combined market share of 90%.  Enphase leads with 48% share, while SolarEdge has 40%.  This is a notable change from 2019, when SolarEdge was dominant with 60% share and Enphase had only 20%.  Enphase’s turnaround is largely credited to CEO Badri Kothandaraman, who took the helm in 2018.

Prior to 2018, Enphase struggled with product failures, leading to unreliability, increased installer costs, and a damaged reputation.  Revenues were falling and the company was rapidly using up its cash reserves.  However, under Badri’s leadership, Enphase focused on improving product quality and customer service, which were crucial in gaining market share from SolarEdge.

Badri introduced a target operating model of 30-20-10, signifying goals of 30% gross margin, 20% opex, and 10% operating income.  Through strict pricing control and continuous improvements, ENPH surpassed these targets, achieving a 45% GM and 20% operating income, outperforming SolarEdge’s 30% GM and 10% operating income.

Another important differentiator is ENPH’s inverter technology.  For those less familiar with inverters, the key role of an inverter is to convert direct current (DC) that is generated at the solar panel into alternating current (AC) that can be used by home appliances.  There are three main types of inverters: string inverters, power optimizers, and microinverters. 

String inverters, used by companies like Tesla, connect panels in a series and convert DC to AC at a central location.  These are simple and cost-effective because they require only one inverter, but are less efficient when there are shadings or have a complex roof structure.  Under string inverters, electricity production at each panel is limited by the lowest-producing panel, so if there is shading or defect at one of the panels, overall energy production is reduced. 

Alternatively, a microinverter, which is used by Enphase, has higher efficiency and better flexibility.  It installs an inverter under each solar panel, converting DC to AC at the panel level.  This allows each panel to operate at its best, unaffected by others and enables monitoring of each panel’s performance.

A hybrid approach between string inverters and microinverters is power optimizers, which is used by SolarEdge.  In this system, each panel has an optimizer at the panel level to allow panels to function independently, similar to microinverters, and sends DC to a single inverter for conversion to AC, similar to string inverters.

Although both Enphase and SolarEdge systems provide panel-level energy efficiency, in speaking with installers, Enphase inverters have several advantages over SolarEdge’s:

• Ease of installation and use: Enphase is often described as being similar to an iPhone in terms of ease of use and setup, making it user-friendly and straightforward.  This ‘dummy proof’ quality is particularly advantageous for newcomers to the solar installation industry.  SolarEdge, on the other hand, is likened to an Android phone, offering greater customization but requiring more expertise for setup.  This distinction can reduce labor cost and expedite installation, making Enphase an attractive choice for installation companies and contractors.
• Lower failure rates and better reliability: Enphase microinverters have demonstrated fewer failures compared to SolarEdge inverters.  This reliability factor is significant for installers and homeowners as inverter failures can lead to significant system downtime.  When an inverter fails, homeowners may miss out on solar generation until it is serviced, which could take days or weeks.  Failure of an inverter often necessitates service visits or ‘truck rolls’, which can be costly and time-consuming for installers.  This is especially true for failures that are not easily accessible or require extensive work for repair.  In the case of SolarEdge, a single inverter failure can render the entire system inactive.  In contrast, an Enphase inverter failure affects only the respective solar panel, allowing other panels to continue generating power.  This reliability advantage has prompted several large installers to switch to Enphase for its straightforward and dependable technology.
• Customer Service: installers frequently report superior service from Enphase.  The company places a strong emphasis on reducing call wait times and improving Net Promoter Scores (NPS).  Conversely, installers have noted lengthy wait times when seeking assistance from SolarEdge, which has created hesitancy in using their products.  
• Stable supply chain: Enphase has maintained a stable supply of its products, avoiding the significant issues that have affected some competitors.  Enphase has consistently produced at a relatively normal rate, meeting market demand without supply disruptions.  The uniformity and modularity of Enphase’s microinverters offer logistical advantages.  In contrast, SolarEdge’s extensive range of products (SKUs) has posed challenges for installers in terms of consistency in getting the required products.  Additionally, during the height of supply chain disruptions, SolarEdge faced delays in fulfilling orders, with lead times extending up to nine months from placement of purchase orders.  While this situation improved over time, it highlights the supply challenges SolarEdge has faced.
• Grid-agnostic: the Enphase IQ 8 microinverter has a unique feature that sets it apart from many of its competitors: it is a grid-agnostic product.  This means that in the event of a grid outage, the IQ 8 can continue to generate power and keep running appliances without a backup battery as long as there is sunlight.  This capability is particularly significant in areas prone to frequent power outages or unstable grid conditions as it allows for continued energy production and use during power outages. 
• Fire risk: Enphase systems convert DC to AC directly at the solar panel, reducing the presence of high DC voltage throughout the system.  This approach potentially lowers the risk of fire hazards compared to string inverters, which handle DC voltages.  
• Battery system: a slight disadvantage ENPH might have is in terms of battery storage capabilities, primarily due to DC coupling.  Batteries use DC power, so SolarEdge requires only one DC/AC conversion.  In contrast, Enphase involves three conversions: from DC to AC at the panel, from AC back to DC for battery storage, and again from DC to AC for grid supply, potentially resulting in slightly lower efficiency.

The only drawback of Enphase inverters is their cost.  They are 15-25% more costly than SolarEdge’s offering and double that of string inverters.  In the current cost-conscious environment, homeowners are seeking more affordable options to minimize initial expenses.  This is creating an opening for new lower-priced entrants, such as Tesla and Asian manufacturers.  Tesla’s market share is small, but it has a strong brand recognition, especially with a lot of customers using Tesla’s Powerwall battery.  However, because it’s a string inverter, it’s not the best option for residential.  Also, inverters are not their main focus of business, so service could lag behind the more established players.  However, Tesla should be monitored closely.

Chinese companies also provide cheaper alternatives.  However, they haven’t been able to make significant inroads in the US market.  Several years ago, Huawei was rumored to enter the US market and caused Enphase shares to fall, but due to geopolitical tensions, trust, security concerns, and trade barriers it never caught on.  Recently, Hoymiles is making noise, but I think it will be difficult for them to build a significant market share for similar issues.  Since inverters are pivotal in data collection and serve as the control center of home solar systems, Chinese brands may continue to face challenges in gaining both political and consumer trust in the US market.

Overall, despite the higher initial cost, Enphase stands out as a superior product, evident in its expanding market share and higher operating margins.  Its strong competitive position, reliable technology, and commitment to customer satisfaction make it a compelling investment opportunity within the renewable energy sector.

Growth Avenues

Enphase is well-recognized in the U.S. market, accounting for 60% of its sales.  It is less known internationally, but the company is now expanding its reach, establishing infrastructure and service teams in Europe, Asia, and South America.  Although international markets present unique challenges, including a stronger presence of Chinese alternatives and distinct regulatory standards, such as the absence of rapid shut-off requirements mandatory in the U.S., Enphase is adopting a detailed and careful approach to position them to capture market share globally. 

The company is also broadening its portfolio, introducing batteries and EV chargers that complement its microinverter technology to create a comprehensive home energy system.  While Enphase might not dominate these new verticals as it does with microinverters, these additions are expected to increase ‘share of wallet’ per home and continue to drive revenue growth.

Valuation

Government incentives, legislative changes, interest rates, and geopolitical events make the solar industry highly cyclical.  To weather through these cycles, Enphase has built a strong balance sheet with net cash of $500M.  This is a significant turnaround from 2018 when it had net debt.  Enphase is also capex light with no big factories.  Therefore, it has high free cash flow generation and has repurchased $1 billion in shares since 2021.  Enphase is estimated to generate $800M this year and projected to generate $1.3 billion by 2027.  Using a growth rate of 15% and 10% cost of capital suggests a DCF fair value of $185-$200/sh.  At 20-25%, it would be $250-$300/sh.  I think these are achievable growth rates compared to 65% annual growth in the past four years.  Solar industry is facing a short-term challenge, but I think the long-term growth will return and Enphase’s superior product and service will allow it to capture a bigger share of a growing pie. 

Hey Guys,

So on the topic of Geopolitics…

Pinduoduo is about as well known by Western consumers as Pinterest is known by Chinese netizens.

There has been a lot of rhetoric and propaganda over the safety of holding Chinese equities. While growth is slowing and China is probably in a recession already, I still think their companies have a great global trajectory in the coming decades.

The U.S. and China recent audit deal deserves some special mention. Beijing and Washington took a major steps in the last few weeks towards ending a dispute that threatened to boot Chinese companies, including Alibaba, from U.S. stock exchanges, signing a pact to allow U.S. regulators to vet accounting firms in China and Hong Kong.

Chinese stocks are Western markets have market caps that are not priced properly, due to the politics and risks of delisting. It will likely take a few years for the dust to settle.

It’s not being widely or well reported, but the China Securities Regulatory Commission and U.S. Public Company Accounting Oversight Board announced Friday that both sides signed an agreement for cooperation on inspecting the audit work papers of U.S.- listed Chinese companies.

Pinduoduo, a case Study Taking on Amazon

Curiously Pinduoduo literally plans to enter the American market in the next few years. So why is this important? PDD has a decent EV/EBITDA ratio and its stock is up 30% in the past five days as its Earnings was supposedly incredible. This is the retailer that provides group-buying. Now Chinese E-commerce is years ahead of the west, with social commerce and group-buying at scale in ways that we might not see in the West for years to come.

Now yesterday, PDD 3.52%↑ saw Pinduoduo movement that was pretty incredible. The China-based e-commerce company’s stock rallied 13.6% in the premarket following better-than-expected quarterly results. The company said its performance was boosted by a recovery in consumer sentiment. This at a time when everyone hates Chinese stocks and their growth is slowing badly due to so many serious factors.

Now it’s fine if you don’t understand Chinese E-commerce and mobile trends in that massive market. But don’t tell me that Chinese companies are uninvestable. The cyclic volatility of Chinese equities is actually a huge opportunity. One of the best ways to play is it in my opinion at this point the Direxion Daily FTSE China Bull 3x Share: $YINN.

It was $605 in February 2021 near the highs, today it’s about 1/10th that. That BAT stocks are struggling is one thing, but look at what TikTok has accomplished in just a few years time, it’s literally forced Facebook’s market cap to take a significant halving of its supposed value. Even with decent fair value, Meta is still affected by ByteDance in terms of its apps and digital advertising future. Incredibly in the West it’s going to be Apple and Microsoft, which has a very high fair value, that slowly take digital Ads marketshare from the Duopoly of Google and Facebook.

According to historical data of Finnhub stock api, Western investors are notoriously bad at understanding or predicting the businesses in China. Whose fault is that, who is not doing their homework?

Meanwhile China will only get better at Cloud computing, digital advertising and having firms that go global, such as Pinduoduo. While China is in turmoil, how could this stock be growing at such a rate? It’s very similar to NVIDIA which also has an extremely high EV/EBITDA ratio .

Pinduoduo announced that revenue soared 36% in the second quarter fueled by China’s Mid-Year Shopping Festival. PDD attributes the bump to pent-up demand following those prolonged China COVID lockdowns. It’s made group-buying synonymous with the future of E-commerce for rural China. A concept, like social commerce, nearly entirely foreign to the West where monopolies like Amazon dominate. While we can criticize China for political reasons, their smart cities are making some of our cities look old school.

The valuation of ByteDance when it goes public in an IPO will be interesting to watch. As it plans to clone Spotify, among other very innovative behaviors for a company that size. The TikTok version of the app in China, called Douyin is already very dominant in the mainland.

The Audit Deal Likely Means ADRs are Poised to Stick Around a While Longer

This audit agreement could slow ADR migration wave and lower expectations for more IPOs and turnover gains in Hong Kong, analysts at US bank say. However for the valuation of ChinaTech I think it’s necessary China makes some compromises for the sake of the BAT companies that do a lot of investing in Chinese innovation and startups.

A beaten down Chinese equinity market is extremely attractive. I don’t know what our resident analyst of APAC stocks would say? He has hundreds of paying subscribers $35 a month, so he must be on to something.

Doing due diligence on Chinese companies is of course fairly difficult for us in the West. However what is the trajectory of a Xiaomi, Meituan, ByteDance or for that matter a Sea SE 2.31%↑ or Shein. Didi and Alibaba BABA 1.09%↑ might be in the dog house, but even a revamped Ant Group is still impressive.

Finding gems in the ruins is incredible in China’s equity sector, for the long-term investor or for the strategic swing trader alike. This is why I’m obsessed with the potential of Asia moving forwards, because the rebound from China’s recession is going to be epic although the recession could stretch easily into 2024 in my humble opinion.

The audit deal deserves special consideration and further study. This after even Alibaba was added to the list of at-risk for delisting names.

In 2013, after years of negotiations, Beijing yielded to pressure and agreed to let US regulators inspect the audit work of Chinese companies whose securities traded in New York. In 2023, we are likely to have a similar moment, hopefully with more clarity and transparency. Otherwise ChinaTech is in serious trouble at least for valuations that make sense compared to their size and growth. The devil is in the details (FT).

The West Misunderstands the Future Scale of Chinese Equities

When Ant Group and ByteDance finally do go public, it will be as significant as when Stripe goes public. The West has no realistic equivalent to what ByteDance even is. This has companies like Facebook, Google, Spotify, YouTube as a product, pretty worried. TikTok is now entering super-app terribly on a global level. And, you tell me Chinese stocks are uninvestable! If you are not doing your geopolitical homework, then you might be leaving food on the table.

Functionally at the very least the audit deal: Washington and Beijing announced they had reached another deal for US accounting regulators to inspect China-based audits, which could prevent about 200 Chinese companies being kicked off American exchanges – is good news for Chinese equities.

But the real kicker is the collapse of the real-estate confidence and mortgage meltdown, means that China will have to convince its citizens to start investing in its stock market(s). This means it will need to take regulation more seriously. This probably means many of China’s companies are undervalued today and especially as they dip in a recession. China’s equity market is very volatile, but volatility is an attribute as the companies tethered to Bitcoin can now attest to as well.

Is Group-Buying Coming to America?

Now I’m not saying to go out and buy Pinduoduo, but that it will directly compete with Amazon is super interesting. On August, 22nd it was reported by Bloomberg (also BNN), that Pinduoduo Inc., one of China’s biggest e-commerce operators, is preparing to enter the North American market in its first cross-border expansion, according to people familiar with its plans. Pinduoduo isn’t even a leader in China in E-commerce, but it is growing faster than its older cousins.

US-traded PDD holds roughly a 13% share of Chinese online retail, according to industry intelligence firm EMarketer, and has in recent times curtailed its heavy investment in online groceries, which were seen as the most promising new outlet for growth in the country. As some of America’s Middle Class and lower middle class falls into lower economic brackets, it’s group-buying features become more enticing. The sad reality of American consumerism where the Capitalistic pyramid is a slippery slope when your rent goes up 20% in one year.

Whether TikTok can make social-commerce go live in the West or if Pinduoduo can lead group-buying trends in America is anyone’s guess, as American consumers are still lagging

As a global recession rolls closer, I encourage you all to study good companies no matter where they are located in the world (okay maybe not Russia). Chinese companies will consolidate and grow after their downturn in a way that I think will surprise a lot of people. American propaganda bashing Chinese equities is already getting a bit tiresome. The Chinese consumer is still important and their firms are only going to get more global in the coming decades. Geopolitics aside, the reality of business stands tall.

If you are interested in my buy calls and more calculated stock overviews and micro cap analysis, feel free to upgrade your membership.

Chinese retail E-commerce events make Black Friday and cyber Monday or Amazon prime days look pathetic, even though Amazon Fair Value is certainly still impressive. Learn what scale means when you study the future of businesses. Try to evaluate how companies will look in five to ten years time from now. Think about the TAM they are in and their potential for global expansion. The era of Chinese firms pushing globally is upon us, even as its society appears in tatters and ruins with complex demographic, real-estate and corrupt leadership issues.

As Europe is weeks ahead, we know the 5th wave is upon us now as of late November, 2022. As micro cap investors, I recommend you keep an eye on a few of these names:

• $OCGN
• $NRXP
• $RLFTF

On November 3rd, 2021 The World Health Organization (WHO) granted approval for emergency use to India’s government-backed Covid-19 vaccine, Covaxin. This is related to Ocugen ticker $OCGN.

After Australia, its trans-Tasman neighbour, New Zealand, too, has recognied Covaxin and Covishield, the two most widely-used vaccines in India’s vaccination drive against the coronavirus disease (Covid-19).

Before the WHO news $OCGN spiked to $15, now it’s back down to $7 in terms of stock price Google Sheets. $NRXP is also way down from its highs. It’s approaching $5, just because the FDA rejected its first attempt with Zyesami. I believe these are all potential buy the dip plays, and I think FOMO will drive them up as the next wave ramps up.

When we look at Germany and Eastern Europe, we realize how Delta waves can get worse than anticipated. The U.S. has pockets of very low vaccination rates. Combined with vaccine efficacy dropping and pandemic fatigue, it really is the perfect storm.

Unlike Cisco DCF, NRx $NRXP says it looks forward to working with the FDA to complete the chemistry, manufacturing, and controls (CMC) review that will ultimately be required for any potential drug approval. It knows how the process works. Picking those two up below $5 could be a possible play and $RLFTF below $0.05 as well. It’s risky but known the charts of these companies, the volatility swings can be truly impressive.

Ocugen partnered with India’s Bharat Biotech to distribute its Covid vaccine, Covaxin, in a timely manner in North America. Even as Covaxin slowly gets mainstream approval for the rest of the world, it’s somewhat unlikely it will even happen in the U.S. $NVAX on that front makes more sense, but don’t tell this to meme stock investors and wall-street hedge funds who think they understand the Reddit army.

Still the $OCGN story is making steady progress. The World Health Organization (WHO) recently offered Covaxin Emergency Use Listing. This is positive for vaccine developer Bharat as it may accelerate the distribution of the vaccine in areas where it’s already been authorized or about to be authorized.

• Ocugen needs to win Emergency Use Authorization for COVID-19 vaccine Covaxin in Canada. That would be the catalyst of hope for buyers of this stock at this point, similar to Cisco WACC.
• Canadian Emergency Use Authorization would certainly make Ocugen more valuable and the company has rights in Canada and the US. It’s already submitted an application in Canada, but we haven’t got a lot of update since the 2nd quarter earnings call when management said that they were ready to answer questions from regulators at Health Canada, which besides that, we don’t have any other updates.

I’m Canadian and I trust Moderna, but not Pfizer as much (and certainly not AZ). I either want the best MRNA vaccine, or if I’m not comfortable with that technology, a widely used less intimidating vaccine. With booster shots needed in January, 2022, Covaxin pretty much fits the bill with pretty high Excel stock price.

In the U.S., Ocugen has filed an application with regulators to launch a new clinical trial. The study would support potential approval of Covaxin. Ocugen has submitted an IND, which is Investigational New Drug application. You have to do that before you start a clinical trial and so they want to run a Phase 3 bridging study.

So all in all, I think $NRXP may be the better buy the dip than $CSCO which has a stable Cisco Intrinsic Value, but both are potentially really good if you have a lot of risk tolerance. Follow the 5-year chart. The volatility of both names have meme-like quality that’s predictable at least.

The pandemic is not over and 2022 could actually be somewhat worse since new variants of Delta appear to be forthcoming. Delta plus is around 10% more contagious. Countries are less able to get people to follow strict measures. The crisis point we are seeing in November, 2021 in Europe will likely shift to where we live as well.

According to short interest api, Covaxin is an ideal safe booster shot and vaccine ideal for kids globally. As for $NRXP Prior to the COVID pandemic, ZYESAMI was never manufactured as a commercial drug for intravenous use. However it’s ability to reduce mortality in ICUs is important as nursing shortages are going to get insane.

At the time of writing:

$OCGN is $7.65 (a buy at $6.80)

$NRXP is $5.36 (a buy at $4.90)

$RLFTF (OTC) is $0.062 ( a buy at $0.047).

As Facebook will pivot its brand in the pursuit of the metaverse, I’d argue ByteDance and Snap who understand GenZ are the actual leaders of the race to the metaverse. During the pandemic, $SNAP’s price was $10, so how did it go to reach $70? In late September, 2021 it reached $83.

According to best stock research websites, Snap reported it missed revenue expectations in the third quarter on October 21st and is down around 30% in the last five days.

• Snap said that Apple’s iPhone privacy changes disrupted its advertising business.
• It also warned that supply chain interruptions were stifling short-term demand for advertising.

Apple’s privacy tracking changes and Google’s Cookie apocalypse really does reformulate the future of Advertising to some degree.

Evidence that ByteDance and Snap are superior in retaining users and GenZ users is obvious however as compared to Facebook, which has become a legacy brand. For Snap, daily active users coming in at 306 million versus the 302.1 million expected. This is really the key metric to watch for social media companies.

Snap also understands AR, gaming and how peer groups function in a way that Facebook has truly missed. While TikTok understands app-algorithms and viral content in a way that Instagram never reached. So who is really leading us to the metaverse? It’s actually companies like Unity, ByteDance and the corporate metaverse Microsoft is building. I would tentatively add Snap to that list as well.

In late 2021, Snap has warned that global supply chain interruptions and labor shortages reduces the “short-term appetite to generate additional customer demand through advertising.” I’ve felt that in my marketing freelancing gigs, given the positive reviews by the best investing websites.

Snap announced on Tuesday that it’s launching a global creative studio to help brands develop augmented reality (AR) advertising and experiences. The new studio is called Arcadia and aims to help companies develop experiences that can be used across web platforms and app-based AR environments. Snap is truly innovative from a product standpoint, even if they don’t have the AI or marketing chops of ByteDance (who have way deeper pockets). TikTok is an app by ByteDance.

Here’s what Snap reported versus Wall Street’s estimates:

• Adjusted earnings per share: 17 cents vs. 8 cents by Refinitiv
• Revenue: $1.07 billion vs. $1.10 billion forecast by Refinitiv
• Global daily active users (DAUs): 306 million vs. 301.8 million per StreetAccount
• Average revenue per user (ARPU): $3.49 vs. $3.67 per StreetAccount.

From form 8k‘s data,Arcadia will function as a division of Snap and have the creative freedom to operate independently and help brands create AR experiences, not just for Snapchat but for other social media platforms as well. So that’s a B2B AR engine for revenue generation.

Facebook already has more than 10,000 employees building consumer hardware like AR glasses that Zuckerberg believes will eventually be as ubiquitous as smartphones. They will rebrand their company name under the Metaverse banner, but there’s scant real world evidence Facebook understands what the Metaverse will actually become. Facebook’s Horizon Worlds is vastly inferior to Unity. Facebooks is notoriously bad at creating new products, or even new apps for that matter, according to 13f filings.

Snap actually builds cool stuff. The new iPhone privacy settings impacted Snap’s advertising business more than anticipated. Snap has been pivoting their entire lives guys. Though even down 23% today, the stock is still majorly overpriced. The concept of the Metaverse cannot be forced, it has to emerge form GenZ digital and consumer habits. It wont’ necessarily evolve from an Ad-centric business model of legacy internet brands like Facebook or Google.

In an earnings call Thursday, Snap, unlike Microsoft 10K, said that it failed to meet revenue expectations for its third quarter. Snap reported $1.07 billion in Q3 revenue, missing Wall Street’s hopes that the company would bring in $1.1 billion. It’s not as if this is an epic failure.

That Snap even exists in a duopoly Ad world of Google and Facebook is astounding. They have created an app where GenZ has grown up in, with features that are useful to real life and peer groups and personal branding. It’s made Instagram look like a cookie cutter trend of the previous decade, and TikTok has cemented Instagram’s demise.

The metaverse is about young people and this is why Facebook cannot build it. Don’t be fooled, Mark has lost his way. Peter Thiel set him up to be an Oligarch of technology and that never ends well. Evan Spiegel is a product genius not unlike the founder of ByteDance. They are cut on different cloth.

At this point it would make sense for Apple to acquire Snap, due to their AR proficiency. However that’s unlikely to happen.

The Market cap of this company isn’t really $117 Billion is it? A Forward P/E of 95? Give me a break. As good a company as Snap is, it’s intrinsic value places the stock at barely a $20 once the stock market corrects. They are still burning cash, Sales are just $3 billion. They have a bit less than 4,000 employees. This is no giant of the Metaverse like ByteDance has become, according to Microsoft 10Q.

Snap is a little fish in big world, an advertising based internet in the U.S. that has been completely monopolized, the Silicon Valley oligarchy. Even as Amazon and ByteDance steal advertising share globally, the Twitters, Pinterests and Snaps of the world can barely expect huge gains.

Snap can’t base its future on advertising alone. Snap sees adjusted EBITDA coming in between $135 million to $175 million. And even on the high end, that was a big miss compared to Wall Street’s expectations for $299.3 million. Snap has never been a financially sound company. Who wants to run blind Ads? Without the wide view that many advertisers were accustomed to, they had to adapt to new, more restrained ways of measuring user behavior.

The simple reality is if you give consumer a choice, unsurprisingly, most people opt out of cross-platform tracking that ad businesses like Snap and Facebook rely on when presented with the choice. And this is important since unlike Facebook’s leadership, Spiegel has consistently been supportive of Apple’s decision to build more privacy into its mobile operating system in spite of how those changes might affect Snap’s bottom line.

Facebook’s metaverse is trying to hold on to the past, while ByteDance and Snap are moving with young people into the next digital reality. By copying Facebook’s post style and focus on Ads, LinkedIn is also trying to re-create the past. So what?

It means Snap’s stock isn’t worth touching until it corrects to pre-pandemic levels. The company’s true value is between a price of $15 and $20. To think otherwise is just foolish investing. On a global level is 300 million users even that great? What saves Snap is that its daily active user base are in lucrative countries and regions, the rich kids.

Snap shares had been up 50% so far in 2021 which is ridiculous. There will be more pain ahead for the price, while I’m positive about the company’s ability to innovate, the inflated market means this is a prime candidate to suffer from Metaverse blues. The last time I bought Snap it was $8.

Let’s not forget Snap had a good run, their share price rose by an impressive 1,000% plus from $7.00 per share in 2018 to trading around $75.00 per share until just recently. That simply wasn’t realistic. Buying a company at 200x earning is just dumb.

Snap faces absurd competitive pressures like TikTok and Instagram. Older generations rarely use the platform so that excludes, as of this date, a majority of people. It doesn’t even matter how innovative the company is when it faces bottlenecks this big. And that’s a huge problem for the stock price.

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