At Spaceship we’re long-term investors. But we still keep an eye on what’s happening in the market day-to-day.
Here’s a look at some of the companies in our Spaceship Voyager portfolios that made moves last week (16/05/22 - 20/05/22).
Moving up
Block
Block is in the Spaceship Universe, Spaceship Earth and Spaceship Origin portfolios.
Block (Australian listed) rose 11.11% last week after its Investor Day on May 18.
The company unveiled its vision as being an “ecosystem of ecosystems”, not just a payments company.
In particular, management outlined plans to integrate Afterpay into the Cash App, expanding the Cash App’s shopping and discovery features and turning it into a super app. Management further highlighted opportunities for the company to build ecosystems within crypto and the creator economy.
Block also released updated profit margins. Adjusted profit margins were 34% for the Square side of the business and 12% for the Cash app.
Moving down
Retailers (Warby Parker, Rakuten, Shopify, Lululemon, Chewy)
Lululemon is in the Spaceship Earth and Spaceship Universe portfolios; Warby Parker, Shopify, and Chewy are in the Spaceship Universe portfolio.
The retail sector sold off after poor results from Walmart and Target.
The uncertain macro-environment, inflation and supply chain delays have made it difficult for Walmart and Target, which are both now holding too much inventory.
This has led to profit falls and a sell down across the retail sector, the thinking being if Walmart and Target can’t manage their supply chains other companies will struggle as well.
We believe this thought process makes sense for general retailers but should not be applied to vertical retailers such as Warby Parker or Lululemon who have much higher gross margins.
Gross margins matter in a time of inflation. Gross margins are the difference between sales and costs of goods sold. The larger the gross margin the larger the value added to input costs.
Retailers generally have low gross margins as they sell identical goods and need to offer competitive prices to attract customers.
For example, Walmart’s gross margins are 24% at the time of writing. This means product costs are 76% of sales. If product costs increase by 10% to 84% of sales, this reduces Walmart’s gross margins to 16% from 27%. This would be a 33% hit to gross margins, and would result in a large downgrade to profits.
Inflation has significant negative impacts on low gross margin businesses if costs cannot be passed on.
Alternatively if we look at Lululemon, gross margins are 58% at the time of writing, so every extra $1 of sales leads to a 58% unit profit. This means product costs are 42% of sales. If product costs increase by 10% to 46%, this reduces Lululemon’s gross margin to 54%, a 7% hit to gross margins. It's a negative impact but much less than traditional retailers.
Another factor is pricing power: we believe differentiated retailers such as Lululemon will be able to pass on cost increases through price rises. In a time of inflation high gross margins and pricing power matter.
Tesla
Tesla is in the Spaceship Universe portfolio and the Spaceship Origin portfolio.
Tesla fell 15.18% last week, as the stock was caught up in the growth stock selloff amid concerns of inflation and rising interest rates.
Furthermore, multiple Wall Street analysts downgraded the stock, warning the latest coronavirus outbreak in China will lead to continued production difficulties and lower than expected deliveries next quarter.
You can see daily price moves and company news when you log into the Spaceship app.
One or more of the Spaceship Voyager portfolios invest Block, Warby Parker, Rakuten, Shopify, Lululemon, Chewy, and Tesla. Please refer to the Spaceship app or our website for more information on what each portfolio invests in.
Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager invests for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.
