Weekly Reading List – 11th of July

This week’s reading and viewing list covers Investing In The Era of Climate Change w/ Bruce Usher, AI Commoditization and Capital Dynamics and The Transition to a Higher Cost of Capital. 

 

📚 Halfway There (Jason Zweig, WSJ)

🎙️ Modest Proposal – AI Commoditization and Capital Dynamics (Invest Like The Best Podcast)

📚 The Robots Won’t Cause Massive Unemployment This Time, Either (Andrew McAfee, The Geek Way)

🎙️ Mineral Resources: Unearthing Value (Business Breakdowns Podcast)

🎙️ Investing In The Era of Climate Change w/ Bruce Usher (Richer, Wiser, Happier Podcast)

📚 The E.U. Goes Too Far (Strtechery)

📚 The Transition to a Higher Cost of Capital (Bridgewater)

📚 The Silent Force Driving Success in Life and Investing (Safal Niveshack)

 

Is There New Life In This ASX Technology Company?

Is There New Life In This ASX Technology Company?

The COVID-19 era witnessed unprecedented growth in technology stocks, fueled by government stimulus packages and historically low interest rates.

This perfect storm of economic conditions created a fertile ground for a risk off attitude with tech companies a significant beneficiary, many seeing their valuations soar to dizzying heights. However, as central banks began to tighten monetary policy and raise interest rates to combat inflation, numerous tech darlings experienced sharp corrections, leaving investors questioning the sustainability of their growth narratives and valuations.

Following a difficult period, a select few companies have managed to regain their footing and approach their previous share price heights. One such standout is Life360 (ASX: 360), a family-focused social networking and location-sharing platform. Unlike many of its peers that have struggled to recover, Life360 has managed to not only return to those heights but exceed, attracting renewed investor interest.

The company’s ability to navigate the challenging post-stimulus environment and deliver value in an era of higher interest rates sets it apart in the tech sector.

About the Company

Life360 offers a comprehensive family-oriented platform designed to keep loved ones connected and safe.

The company’s flagship mobile application and Tile tracking devices form the core of its product ecosystem, providing users with a suite of features including real-time location sharing, safe driver reports, and crash detection with emergency dispatch capabilities. With a global reach extending to over 150 countries and approximately 66 million Monthly Active Users (MAU’s), Life360 has established itself as a leader in the family safety and connectivity space. The company’s mission to deliver peace of mind resonates with families of all types, addressing the universal need for security and connection in an increasingly digital world.

Life360’s recent expansion includes the acquisition of Tile, enhancing its ability to track not just people but also pets and valuable belongings. The move has broadened the company’s service offerings and strengthened its market position. As Life360 continues to innovate and grow, it has taken steps to increase its presence in the U.S. market, including a recent initial public offering aimed at boosting capitalisation and financial flexibility

The company’s Nasdaq initial public offering marks a significant milestone. The offer consisted of 5,750,000 shares of common stock priced at $27.00 per share, with 3.7 million shares being offered by Life360 and a further 2.05 million from existing investors. The company raised approximately $100 million from the sale of its shares, which will be used to bolster its financial position and fund general corporate purposes including working capital. Trading on the Nasdaq under the ticker symbol (NASDAQ: LIF) commenced on June 6, 2024.

The US is viewed by management as a natural progression in the company’s expansion, potentially opening doors to a broader investor base and increased market visibility.

How They’ve Turned it Around

Life360 has seen its share price more than double in the last 12 months.

The catalyst for the incredible growth has been driven by the company’s strategic pivot towards monetising its valuable user base through advertising. After experiencing volatility in 2022, with shares falling to $2.50 in June amid a broader tech sell-off, the company has rebounded strongly. The new advertising offering leverages Life360’s unique position in the family-tracking app market, tapping into a high-value demographic that is particularly attractive to advertisers. The company’s extensive first-party location data provides a rare and valuable asset for contextually relevant advertising.

The announcement sparked market enthusiasm and led to an impressive 38% increase on the day.

While initial revenue from this new offering in Q1 2024 was minimal, Life360 anticipates significant growth in the second half of 2024 and substantial scaling in the coming years. The company has completed development work for programmatic ads and expects to be set up for direct sales at scale.

The move positions Life360 to potentially transform its business model, creating a major new source of revenue while maintaining a privacy-first approach that complements the user experience.

Recent Results

In a Q1 update to the market, Life360 showcased impressive financial and operational performance.

Total revenue increased by 15% year-over-year to $78.2 million, driven by a 19% rise in subscription revenue, which reached $61.6 million. Core subscription revenue, excluding non-core hardware-related subscriptions, saw a 23% increase to $57.0 million. The company achieved a record net addition of 96,000 Paying Circles, a 21% year-over-year growth, bringing the total to 1.9 million. Paying Circles represent groups of users subscribing to Life360’s premium services. MAUs also grew significantly, with 4.9 million new users added, a 31% year-over-year increase, totaling approximately 66.4 million globally.

Life360 reported its sixth consecutive quarter of positive adjusted operating earnings at $4.3 million, a substantial improvement from $0.5 million in Q1 2023, and narrowed its operating earnings loss to $4.1 million from $12.6 million the previous year.

Annualised Monthly Revenue (AMR) reached $284.7 million, up 19% year-over-year. Additionally, the company generated positive operating cash flow of $10.7 million, an improvement of $19.9 million from Q1 2023.

The TAMIM Takeaway

Life360 has progressively moved through the broad peaks and troughs of technology share price movements of the 2020 to 2022 period. The company is showing impressive growth in its key operations measurements, as well as improving financial performance, hence it has gained prominence in the past 12 months.

Life306’s innovative approach to monetisation, particularly through its new advertising offering, has positioned it for continued future growth. With impressive Q1 2024 results and significant user base expansion, Life360 is capitalising on its unique market position in the family-focused technology sector. The company’s streak of positive adjusted operating earnings and improved cash flow underscore its operational efficiency. As Life360 begins to leverage its valuable first-party data and expand its advertising capabilities, it is poised for further financial growth and market penetration. The recent Nasdaq listing opens new avenues for investment, reinforcing Life360’s status as a compelling opportunity in the technology sector.

With a clear strategy and strong execution, Life360 is well-positioned to continue expanding its user base, collecting valuable data and providing value to its customers. In turn, with both operational and financial metrics showing positive progress, this technology company should continue to be on investor’s radar.

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Disclaimer: Life360 (ASX: 360) is currently held in TAMIM Portfolios. 

Re-Born in the USA: Who will Benefit from the Reshoring Trend?

Re-Born in the USA: Who will Benefit from the Reshoring Trend?

In recent years, the trend of deglobalisation and “reshoring”—bringing manufacturing production back home to the US—has gained momentum. This shift is accelerating due to the Biden administration’s investments, tax incentives, and a tougher stance on China’s technological ambitions. While offshore production sites face setbacks, the U.S. economy and various key industries stand to benefit.

Globalisation, once seen as an unstoppable force, has slowed since the early 2000s due to rising U.S. income inequality and shifting perceptions of offshore manufacturing. The COVID-19 pandemic exposed the fragility of global supply chains, leading to widespread shortages and logistical challenges. Factories shut down, postal services were overwhelmed, and even hospitals struggled to secure essential supplies. Governments and companies are now focused on strengthening domestic supply chains to mitigate these vulnerabilities.

Geopolitical developments, such as increased scrutiny of foreign investments and national security concerns, have further decelerated globalisation. Recent events, including the Russia-Ukraine conflict, and U.S.-China trade tensions, have highlighted the risks of global supply chains, driving a renewed focus on localising production.

As we delve deeper, we’ll uncover some of the key beneficiaries of this reshoring trend, exploring how these developments act as a powerful tailwind for future growth.

The Shift Away from Globalisation

Starting in the 1970s, the opening of developing markets, particularly China, to international trade and finance led to a strong movement toward the globalisation of production and supply chains. American manufacturers benefited from offshoring—outsourcing production to other countries—by cutting costs, improving efficiency, and accessing new markets.

However, globalisation also brought significant drawbacks. The U.S. economy suffered from the massive loss of manufacturing jobs, deterioration of domestic capabilities, and expanded trade and budget deficits. Offshoring companies became increasingly dependent on foreign suppliers and exposed to risks such as intellectual property theft, exchange rate fluctuations, political instability, and natural disasters.

More recently, several factors have spurred the drive toward improved supply chain resilience:

  • Increasing interdependence of global supply chains.
  • Vulnerability of lean supply chains to external shocks from the pandemic, tight labour markets, or shipping container shortages.
  • Rising geopolitical tensions among trading partners, heightening the risk that a single partner could disrupt the flow of needed supplies.

Geopolitical tensions, natural disasters, and economic uncertainties continue to threaten globalisation. As the U.S.-China clash over cutting-edge technology intensifies, the Biden administration has ramped up efforts to retain intellectual property and jobs domestically through economic support for reshoring companies and limiting Chinese access to U.S. technology.

Advantages of Reshoring

Reshoring offers numerous benefits for the U.S. economy, such as reducing unemployment, increasing the skilled workforce, fostering productive communities, and cutting trade deficits. For instance, 38% of new jobs created in 2022 were attributed to reshoring operations, with an additional 300,000 jobs created in 2023. However, the advantages of reshoring extend beyond macroeconomic impacts and significantly benefit companies that bring their operations back home.

By producing in the U.S., companies can cut costs that have risen dramatically in offshore production countries over the past decade or two. These include increasing wages abroad, higher transportation costs, stringent quality control measures, and the necessity of protecting intellectual property rights. Additionally, reshoring can lead to shorter delivery times, availability of skilled labour, and a reduced carbon footprint, all of which are becoming increasingly important in today’s market.

In summary, offshore production has become much less justified economically than a decade ago, while the risks of long and complex supply chains have become substantially more acute.

Government Support for Reshoring

Reshoring is a complex and costly process, requiring significant support from policymakers. The U.S. government has introduced several initiatives to aid businesses in navigating these challenges. The Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the CHIPS Act are pivotal in supporting American businesses, providing over US$2 trillion in federal spending over the next decade. These initiatives aim to enhance U.S. economic competitiveness, innovation, and industrial productivity.

And, at the business level, it’s already working. According to a survey by Kearney, 96% of CEOs are evaluating reshoring, have decided to reshore, or have already reshored their operations, a significant increase from 78% in 2022. Additionally, mentions of “reshoring” in company earnings reports are rising faster than mentions of “Artificial Intelligence (AI),” highlighting the growing importance of this trend.

Key Beneficiaries of Reshoring

Many U.S. businesses across various industries are investing in reshoring their production and sourcing. Technology firms like Intel (NASDAQ: INTC), Texas Instruments (NASDAQ:TXN), and Taiwan Semiconductor (NYSE:TWN) are direct beneficiaries of the CHIPS Act, which provides grants to companies expanding semiconductor production in the U.S.

In November 2022, Panasonic (TYO:6752) began constructing a new lithium-ion battery manufacturing facility in Kansas, expected to create 4,000 jobs and represent the largest private investment in the state’s history. This facility is part of Panasonic’s strategy to expand its battery production capabilities in the U.S. The company already operates a joint battery plant with Tesla in Nevada and plans to build a third somewhere in the central U.S.

Additionally, late in 2023, Micron (NASDAQ:MU) announced plans to build a US$20 billion semiconductor chip factory in New York, which could eventually grow to a US$100 billion investment, creating 50,000 jobs. 

Broader Industrial Impact

The Inflation Reduction Act (IRA), focusing on clean energy technologies, energy efficiency, and reduced healthcare costs, is already boosting U.S. manufacturing. The IRA, along with the CHIPs Act and the Infrastructure Investment and Jobs Act, is expected to drive substantial infrastructure spending for years to come. This spending will benefit numerous companies across industrial, construction, and material sectors, where there is exponential growth required to address surging demands, as we discussed in Power Play: Investing In Energy For Innovation

The TAMIM Takeaway

As the U.S. continues to navigate geopolitical and economic challenges, reshoring will remain a critical strategy for sustainable growth and innovation. This trend is creating significant opportunities across various sectors, supported by government initiatives like the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the Chips Act, which foster a favourable macro environment for companies poised to thrive.

For global investors, companies benefiting from reshoring, along with other secular tailwinds, present promising long-term prospects. These companies are positioned to capitalise on cost efficiencies, reduced supply chain risks, and robust policy support for innovation and growth.

TAMIM has just launched the new Global Tech and Innovation unit class which takes advantage of these reshoring trends. Please click here to see more information on this exciting new investment opportunity.

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Disclaimer: Texas Instruments (NASDAQ: TXN) is currently held in TAMIM Portfolios. 

Weekly Reading List – 4th of July

This week’s reading and viewing list covers The Magic of Compounding and Mark Zuckerberg on Creators, AI Studio, Neural Wristbands, Holographic Smart Glasses, Picasso & More. 

 

📚 The Roundup: Top Takeaways from Oaktree Conference 2024 (Howard Marks, Oaktree co-CEOs Robert O’Leary and Armen Panossian)

📚 The Petrodollar Is Dead, Long Live the Petrodollar (Javier Blas, Bloomberg)

📺 Mark Zuckerberg on Creators, AI Studio, Neural Wristbands, Holographic Smart Glasses, Picasso & More (Kallawy (YouTube)

📚 The Life Cycle of Market Champions (Bridgewater)

📚 Finding Great Leaders Early (Ian Cassel)

📚 Melinda French Gates: Here’s the best lesson I got from Charlie Munger (CNBC)

📚 The Magic of Compounding (The Rational Walk)

🎙️Bogumil Baranowski on Building Generational Wealth and Playing the Infinite Game of Investing (The One Percent Show)

Rebounding Electric Vehicle Share Prices: Tesla and Rivian

Rebounding Electric Vehicle Share Prices: Tesla and Rivian

Throughout market history, stocks, sectors, and thematic investments have experienced a swinging pendulum of sentiment, oscillating between overly pessimistic and overly optimistic extremes. As we’ve noted many times, successful investing requires second-level thinking—moving beyond the headlines and digging deeper to understand whether forecasts are exceedingly bearish or bullish.

One area recently bucking some overly negative sentiment is the electric vehicle (EV) sector. Investors should note several important statistics. The EV market continues to grow, even if growth rates fluctuate. For instance, EV sales in the U.S. jumped 60% last year, from 1 million in 2022 to 1.6 million in 2023. To put this in perspective, in 2016, only 200,000 EVs were sold in the U.S., which is eight times fewer than today’s annual sales.

It is true the internal combustion engine (ICE) vehicles still dominate, commanding around 75% of total U.S. vehicle sales. However, EV sales have continued to climb in 2024. The same is true across Australian and Europe – while the growth rate of EVs may not be as steep as it was in 2022 and 2023, overall the EV market continues to increase.

So why are the share prices of EV makers like Tesla (NASDAQ: TSLA) down so much (at the time of writing) this year? 

The issue isn’t growth—it’s expectations.

Tesla: Addressing Challenges and Showing Resilience

Shares of Tesla have been on a comeback trail recently. Tesla has faced numerous challenges this year, including slowing sales growth across the EV sector, distractions for CEO Elon Musk, and increased competition. These factors combined to push a negative narrative and sentiment towards the company. 

However, the company has shown resilience in the first six months of 2024. In June, Tesla shareholders approved a controversial pay package for Musk, lifting a significant weight off the sentiment and sparking renewed investor confidence.

Now, after reporting stronger-than-anticipated vehicle deliveries, the Tesla share price has surged again helping the company increase its market cap by over 40% in the past four weeks.

In the second quarter of CY24, Tesla delivered nearly 444,000 EVs, surpassing the consensus estimate of 439,000 units. Despite a 4.8% decline from the year-ago period, the figure rose 14.8% from the first quarter.

In more good news, Tesla marked a record 9.4 GWh (gigawatt hours) of energy storage products deployed in the second quarter. This more than doubled the previous record of 4.1 GWh reported in Q1 2024.

There’s been a surge in interest in energy storage products to smooth out power supply as renewable energy sources are installed for applications including growing data centre construction.

The rise in energy storage deployments favourably positions Tesla with yet another source of revenue for the company. Tesla prides itself on technology – software, energy storage, robotics, and the potential for self-driving vehicles. 

Tesla will continue to push the case that it is more than “just an EV car maker” when it provides an update on its self-driving technology on August 8.

Rivian: Securing a Lifeline Through Volkswagen Investment

EV start-up Rivian (NASDAQ: RIVN), despite developing a unique brand and increasing sales over the last two years, continues to face significant cash flow challenges. However, a lifeline emerged last week when global automaker Volkswagen (ETR: VOW3) agreed to invest up to US$5 billion in Rivian over the next two years.

This investment led to a surge in Rivian’s share price, although the stock remains down nearly 43% in 2024. Volkswagen’s investment will initially be US$1 billion in the form of a convertible note, converting to Rivian shares once regulatory approvals are received. Additionally, Volkswagen plans to invest another US$4 billion through a joint venture focused on developing next-generation EV architecture.

For Rivian, this substantial cash infusion will allow continued business scaling. Combined with its existing US$7.9 billion cash balance, this investment provides ample resources to ramp up production of lower-priced R2 SUV models and build out a US$5 billion manufacturing campus in Georgia, USA.

The partnership will also enable Volkswagen to access Rivian’s valuable zonal hardware design, critical for its next-generation EVs. Rivian’s ability to reduce vehicle costs and improve manufacturing processes will be bolstered by Volkswagen’s expertise, positioning Rivian to potentially achieve a positive gross margin by the Q4 2024 and setting long-term targets for profitability.

The TAMIM Takeaway

It is common to see leading players in particular sectors bounce back once it becomes clear that broader initial fears were overdone. Savvy investors should take note when historical multiples reach relevant lows and when narratives, rather than facts, drive share prices down. While second-level thinking does not guarantee success in investing, truth-seeking remains a crucial skill. The rebound of Tesla and Rivian highlights the importance of looking beyond immediate challenges to recognise long-term potential and strategic opportunities.

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Disclaimer: Tesla (NASDAQ: TSLA) and Rivian (NASDAQ: RIVN) are currently held in TAMIM Portfolios.