Coatue's View of the Market, Or Why Catching a Falling Knife Is Dangerous

www.newcomer.co

Coatue sees "zero valuation support" for Robinhood and Lemonade. The hedge fund makes the case for Tesla, Nvidia & Datadog in slides obtained by Newcomer.

A few takeaways based on Coatue’s presentation:


  • The market can head-fake rebound significantly on the way down. During the dot-com bubble, the NASDAQ fell 37%, climbed 32%, fell 61%, etc.
  • Questionable technology companies can be the first companies to reset but that doesn’t mean the correction is over.
  • So far we’ve seen valuations fall — but earnings revisions, driven by a potential recession, could still be ahead of us. If earnings projections erode, then declining multiples won’t be the only reason for tech stock prices to continue to fall.
  • Retail traders flooded the stock market during the pandemic and we’re only starting to see that trend unwind.
  • The market is failing to differentiate between good companies and bad ones.
  • Coatue sees “zero valuation support” for both Robinhood and Lemonade. The firm tags each business with having a “broken business model.” (Robinhood’s market cap sits at $7.5 billion today and the company’s stock price is down 53% so far this year. Lemonade is worth $1.3 billion and has seen its stock fall 51% since the start of the year.)
  • Pinterest and Snap have both seen their stock prices fall since the start of the year, but Coatue identifies positive user growth for Snap and U.S. user decline for Pinterest. (Snap is down 69% year to date while Pinterest is down 46%.)
  • Similarly, Coatue is a believer in DoorDash’s business as the number one food delivery business in the United States, but is less optimistic about Lyft’s financial prospects as a money-losing, second-place player.
  • Even as Coatue identifies stocks that it believes in, heavy correlation between tech stocks make it risky to pick stocks. A favored stock could end up trading on broad, market-driven factors rather than the company’s fundamentals.
  • Coatue sees the potential for $1 trillion to go missing from the startup and IPO market. If the startup world reverts to historical averages, then private funding could shrink from $700 billion in 2021 to $175 billion. Funding through public offerings could fall from $700 billion in 2021 to $250 billion. The idea that the startup ecosystem could run short on money contradicts the thinking from some startup world optimists like former YC partner Aaron Harris. He argued this week in The Information that investors aren’t suddenly going to check their pockets only to find them empty. Harris wrote, “Venture capitalists are sitting on more cash than they’ve ever had.” Coatue seems to thinks there’s less dry powder out there than it might appear.


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