TheBRRR’s Thoughts

GM. Equities and risk assets have continued to walk higher this morning. There’s optimism in the air - thanks in part to Tesla’s earnings and product announcements after the bell yesterday.

Tesla missed expectations on both EPS and revenue, but Wall Street rewarded the company for its strategy pivot and updated product roadmap including robots, robotaxis, and an affordable vehicle.

Earlier this month, Reuters had reported that Tesla was cancelling plans for an affordable mass-market vehicle and the stock fell. Yesterday Tesla announced that not only was the car not cancelled, but that they expected to release it within the next 12 months and the stock rallied.

The stock was heavily shorted into earnings (short interest reached 18-month highs), which added fuel to the 13% rally.

We’ve now got Meta reporting after the bell today with Microsoft & Google scheduled for Thursday.

For today’s newsletter we’ve got the scoop on Tesla, but we’re also sharing a deepdive from Yahoo Finance into the retail-driven memecoin mania that’s now attracting hedge fund participation.

In previous crypto bull runs, retail loaded up on tokens that VCs and hedge funds already owned. Retail was exit liquidity allowing the funds to exit positions with immense profit.

This time, retail is skipping over these investments and their predatory token designs to dive straight into community-launched memecoins.

While the memes launch with no promise of utility, the communities that form around them occasionally band together to build and launch products to galvanize support.

It’s a speculative mania to be sure - but relative strength amongst leading memecoins has persisted for months and it’s worth attempting to understand.

Tesla Soars Despite Earnings Disappointment

Tesla Q1 2024 Earnings Report Summary

WHAT HAPPENED:

• Tesla's Q1 performance fell below Wall Street expectations, with both revenue and adjusted earnings per share (EPS) experiencing significant declines.

• Despite disappointing earnings, Tesla's stock surged by 13.3% in after-hours trading, primarily driven by the announcement of an accelerated launch schedule for more affordable vehicles.

• The company also teased a robotaxi product, which will allow owners to earn money from their idle vehicles.

Key Financial Metrics:

• Revenue: Decreased by 9% year-over-year to $21.30 billion, missing the expected $22.15 billion.

• Adjusted EPS: Dropped by 47% year-over-year to $0.45, below the analyst consensus of a 40% decrease.

• Automotive Gross Margin: Fell to 18.5% from 21.1% in the prior year.

• Operating Income: Down by 56% year-over-year.

• Operating Cash Flow: Plunged by 90%, with free cash flow turning negative at -$2.5 billion.

Operational Highlights:

• Vehicle Deliveries: Down by 9% compared to last year, with a total of 386,810 vehicles delivered.

• Production: Slightly reduced by 2%, totaling 433,371 vehicles.

WHY IT MATTERS:

• Strategic Shift to Affordable EVs: Tesla's announcement to expedite the production of more affordable models highlights a strategic pivot aimed at capturing a broader market amid softening demand for higher-priced models.

• Financial Health: The significant drop in operating cash flow and the shift to negative free cash flow raise concerns about Tesla's short-term financial sustainability, especially with ongoing investments in AI and new manufacturing techniques.

• Investor Sentiment: Despite the underwhelming financial results, investor sentiment was buoyed by the new vehicle launch timeline, suggesting confidence in Tesla's long-term growth through expanded market access.

LOOKING AHEAD:

• Optimus Humanoid Robot: Elon Musk's update on the anticipated commercial rollout of the Optimus robot and its potential to significantly contribute to Tesla's future revenue and value adds another layer of speculative interest in the company's diversification strategy.

• Self-driving Ride-hailing Service: Tesla's tease of an Uber-like ride-hailing app underscores its ongoing commitment to achieving full vehicle autonomy, which remains a pivotal element of its long-term strategy.

In summary, while Tesla's Q1 2024 reflected financial and operational challenges, strategic announcements related to new product launches and technological advancements have managed to maintain investor enthusiasm.

Elecktrek, Motley Fool

Hedge Funds Are Succumbing to Mind-Boggling Returns of Retail-Driven Memecoin Mania

TheBRRR’s Editor’s Note: Think of memecoins as a 24-7-365 price ticker that reflects the relative attention, relevance, and popularity of different memes and components of internet culture. It’s highly speculative and volatile, but the sector has birthed many of this year’s top performing liquid crypto assets, so we want to cover what’s happening and speculate as to why.

WHAT HAPPENED:

• Rising Interest in Memecoins: The hedge fund industry, long adept at navigating volatile markets, is now diving into the realm of memecoins.

• Significant Gains and Pullbacks: California-based Stratos achieved a remarkable 137% return in Q1, outperforming the broader crypto market.

• Wider Adoption Among Hedge Funds: Besides Stratos, other major players like Brevan Howard and Pantera Capital have shown interest, albeit cautiously, in memecoins. The market cap for memecoins has surged to approximately $54.7 billion with Doge, Shib, Pepe, Wif and Bonk leading the way.

• Increased Trading Volumes: Memecoins have seen the highest trading volumes on decentralized exchanges in recent months, signifying growing trader interest and acceptance.

WHY IT MATTERS:

• Shift from Niche to Mainstream: Originally viewed as novelties or jokes, memecoins are increasingly regarded as legitimate, albeit highly speculative, investment vehicles within the hedge fund sector. This shift reflects a broader acceptance of high-risk, high-reward strategies in traditional finance.

• Infrastructure and Liquidity Improvements: The infrastructure around memecoins has matured, with easier creation and trading mechanisms, and better liquidity through mainstream exchanges and futures markets.

• Speculative Nature and Risks: While memecoins can provide substantial returns quickly, they embody a speculative bubble that mirrors past frenzies like those seen with GameStop. This trend underscores the 'gambling' aspect of investment in digital currencies without foundational economics.

• Potential for Institutionalization: With hedge funds increasingly comfortable with memecoins, the likelihood of specialized meme-focused investment funds emerging is high, paralleling the earlier rise of crypto and NFT funds.

Yahoo Finance

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll