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Good afternoon,

The ASX 200 had a rough old week, clsoing down 2.29% at 5,919.  Gold stocks added 2-12% depending on which one you look at while A-REIT's Industrials and Healthcare struggled. 
Chart looking a bit directionless at the moment with momentum fading.  Kind of makes sense ahead of reporting season and with some incremental uncertainty around Coronavirus.
And as uncertainty increases, so does the popularity of the seemingly bulletproof US tech sector. 
This appeal has translated into our local technology names.  Though I'd argue what you're buying in the US is not comparable to what you are buying in Australia.  Wisetech (WTC) and Iress (IRE) are not Microsoft (MSFT) and Adobe (ADBE).   It's like trying to argue that Lebron James and Andrew Gaze, who both dominate/dominated their respective leagues, are equally as good. 
Here's a chart of the NASDAQ in AUD vs the Aussie "Tech" sector.  
As for this current lunacy around Buy Now, Pay Later (BNPL), I'm not sure what the hell is going on but it's not right.  I'm not a big Marcus Padley fan and I completely disagree with elements of this article, but "The Afterpay Bubble" its worth a read.  Most important bit is about the broker consensus capitulation and insider selling.

The takeaway here is if you need to understand WHY your shares are going up.  US tech might be going up for a valid reason and investors are (erroneously, in my not-so-humble opinion) equating game changing, once-in-a-lifetime-revolutionary businesses with a poorly run, opaque, occassionally-illegal, no-moat layby company that loses more money every time they sign a new customer. 
How to make money in technology stocks

In fact, this next little bit applies to many industries, not just tech.  But I'm going to use an example from tech, so... whatever.  

Rewind to 2010 and Adobe Systems (ADBE) sold it's software in a box at places like Harvey Norman.  You'd buy Photoshop and Illustrator on a CD and install it on your computer to design logo's, professionally edit photos and do just about any other graphic design-type task you could dream up.  Great software, great company. In 2009 it was doing $5.80 per share in revenue and $1.27 in net profit, both essentially had doubled over 9 years.  Here's a chart of their total shareholder return over that period (recognising the GFC in 2008).
In 2013, Adobe made the radical decision to change their business model.  Under the stewardship of Chief Marking Officer Ann Lewnes, Adobe changed in an 18 month period from charging $1,300 to $2,600 for their software, to a $9.99-$52.99 monthly subscription - where you received all the latest updates and features direct from the Cloud.  

As a result, Adobe's revenue fell c. 10.5%, pretty much the first time the revenue had declined year-on-year due to a management decision (only other times were tech-crisis in the early 2000's and the GFC.) 
And then this happened to their share price over the same period...+197%
And since 2014, the stock has risen a further 644%.
Profits up 482% and revenues up 290% over the same period.
The reason is REOCCURING revenue is much more valuable than TRANSACTIONAL revenue. 

This is the single biggest unlock in company value and one of the most difficult transitions for a company to execute - you need to have excellent brand/customer loyalty, a real competitive advantage and the institinal fortitude to handle a fall in total revenue for a period of time, because part of the value proposition to customers is they pay less over all. 

An interesting stat is there is almost 100 financial advisers, stockbrokers and "industry people" who read this note every week.  Many of them are trying to execute a similar unlock in their business (something we did a number of years ago.) 

Anyway, take this to today, and Twitter (TWTR) stock jumped 20% this week on the rumour that they are about to switch from an advertising revenue model to a SUBSCRIPTION model.

Walmart (+9% this week) are also thinking subscription over transactional revenue.  This week the rumours started flying around that "Walmart +" is in the works.  It's an Amazon Prime-style membership shopping service with a Walmart-branded credit card with unlimted 5% cash back and next day/two day delivery.  

Amazon (AMZN) trades on 30x EV/EBITDA, while Walmart (WMT) trades on 13x. 
Twitter (TWTR) trades on 25x EV/EBITDA, Netflix (NFLX) trades on 50x
Anyway, find companies that can pivot to reoccuring revenue.  You'll make money.
Note:  Afterpay (APT) only has TRANSACTIONAL revenue and trades on 430x EV/EBITDA
Vulcan Energy Resources (ASX: VUL)

I did 30 minutes with Dr. Francis Wedin from Vulcan Energy Resources last week.  They are really onto something with that project I reckon.  Company announced an investment agreement with the EU-backed EIT InnoEnergy this week.  Impressive stuff. 
Anywhere, here's the video...
Luke Laretive & Dr. Francis Wedin, CEO, Vulcan Energy Resources (ASX: VUL)
Movers & Shakers

Alright, I've been typing too long.   Gold, tech and some defensives (COL, TLS).  Netwealth (NWL) continue to get some nice inflow. 
Not sure what's going on with CTD, I don't really follow it - I hate their accounting.  But WEB, IEL and FLT all had a tough week so assuming its to do with lockdowns/no travel for longer.
Western Areas (WSA), Boral (BLD) & Aristocrat (ALL) shorts building... 
Have a good weekend, 
LL
Luke Laretive
CEO & Investment Adviser

T  +61 3 8639 1601  |   M  0451 122 656 | lukel@senecafs.com.au
Level 2 Professional Chambers
120 Collins Street Melbourne VIC 3000 
AFSL No. 492686
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