• The company that could take down Robinhood…
  • There’s no turning back from blockchain tech…
  • This dinosaur carmaker is on the path to recovery…

Dear Reader,

Right out of the gates this morning was a massive announcement from a company I wouldn’t expect to be writing about… rental car company Hertz!

The company announced that it placed an order for 100,000 Teslas in an effort to electrify its rental car fleet. This is a major deal, as it represents an amount equivalent to 20% of its current global fleet of 500,000 rentals.

Even more exciting is that the procurement is going to happen quickly. The Teslas will be delivered to Hertz over the course of the next 14 months. Major U.S. markets and parts of Europe will see Tesla Model 3’s first, with the rest of the world to follow.

Hertz will be able to leverage Tesla’s network of superchargers in addition to investments it will make to build out its own charging infrastructure.

What makes the deal even more incredible is that Hertz just emerged from bankruptcy this July. It was a heavily indebted mess of a business that failed to evolve before the pandemic hit. And when it did, that pushed the company over the edge.

The scale of the order is roughly one tenth of Tesla’s current annual production. And Hertz is purchasing kitted-out versions of the Model 3, not the most basic models. The business will result in about $4.2 billion in revenue for Tesla.

And here’s why the deal was such a smart move by Hertz. Because the order is so large, it is basically locking up Tesla’s production. By doing so, Hertz is boxing out its own competition from trying to duplicate the move.

It would be natural to ask… How is Hertz going to pay for this? It doesn’t have the money right now to purchase all of the cars, and its business continues to lose money.

That said, with a competitive differentiator like this, I believe that it will be able to find financing either through convertible debt or through a large secondary offering.

I have to say, I’m surprised that the other rental car companies have not already made a move like this considering how popular electric vehicles (EVs) are today. It seemed like an obvious strategy to attract customers, but I suspect that the entire industry was so indebted and ingrained in its ways, it took a bankruptcy like Hertz to snap them out of the old way of thinking.

The market loved the news. Both companies flew out of the gates this morning as if in a drag race. Hertz opened up 13.7%, and Tesla jumped 6.4% on the open.

Even more remarkable is that the news put Tesla within a breath of a trillion-dollar valuation. The company is at all-time highs right now, trading at a $950 billion valuation. It won’t be long…

Longtime readers know that I’ve been a Tesla bull for a long time. The company was arguably the most controversial recommendation I made in the last seven years. That said, while Tesla is such an incredible company, I wouldn’t be a buyer here.

Tesla is now trading at an enterprise value of nearly 21 times annual sales. This is for a company making 25% gross margins – not 87% gross margins. Tesla continues to grow at a great pace, but eventually that multiple will drop back down below 10.

While Tesla gets almost all the attention in the EV space, there is one company that is now far more attractive from an investment perspective. What’s more, it has the same growth potential that Tesla had five years ago… If you’d like to learn more, please go right here.

Robinhood’s hiccups are giving way to this company…

The first story of the day is about a new online brokerage called Public that is poised to unseat Robinhood.

As many readers know, Robinhood is a popular online brokerage that makes investing simple with its easy-to-use mobile app. The “commission-free” service is very popular among the younger generations, as it allows access to stocks, options, and exchange-traded fund (ETF) investing.

We’ve talked a lot about Robinhood this year, as it was stoking the GameStop trading controversy and generally fueling the pumping and dumping of “meme” stocks.

Then it changed its tune. It restricted accounts, prevented purchases, and, in some cases, forcibly sold stocks on behalf of customers. This happened because Robinhood basically couldn’t meet its own margin calls. It ran out of liquidity and had to restrict trading, sell customer stocks, and raise additional capital to get back on solid footing.

This turn of events understandably led to a wave of negative reviews. As many as 10,000 one-star reviews were submitted within hours… though they were systematically removed by Google – an investor in Robinhood’s Series D round.

These poor business decisions made it clear Robinhood did not value its 31 million users… and it treated them as the product.

Yet Robinhood’s foolishness is now paving the way for a new contender called Public.

The mobile-first company offers a platform that is becoming more popular by the day. Similar to Robinhood, it is a social investing application that lets customers trade, invest, and mirror other investors with their own portfolio.

And like Robinhood, Public is preparing to give users access to cryptocurrencies. It plans to start with 11 cryptos and will likely expand in time.

Public is working with a third-party company called Apex Crypto in order to handle the order execution and custody of assets. In doing so, it’s opening up its users to a new investment class.

The company is clearly trying to appeal to the younger demographic that was originally drawn to Robinhood. And it appears to be succeeding. Public reported that its user base grew 10-fold in 2020.

Its steady progress is paying off financially as well…

In February, Public held a Series D financing round, raising $220 million. This was after it had already raised $65 million last December. It is now worth $1.2 billion – unicorn status.

This is extraordinary, and it reflects the appetite for alternative mobile-first brokerages aimed at younger audiences. And with Robinhood’s recent issues, Public is certainly in a good position to take the lead…

Technology that MoneyGram cannot do without…

The next story of the day highlights how significant blockchain technology is for a company like MoneyGram.

We recently wrote about MoneyGram receiving a sizable investment from Ripple – a blockchain success story – to implement its technology. The partnership aimed to reduce the friction of cross-border money transfers. MoneyGram was an ideal candidate for Ripple’s tech, as it is the second-largest player behind Western Union.

MoneyGram was doing great while employing Ripple’s technology… until the U.S. Securities and Exchange Commission (SEC) stepped in.

Earlier this year, the SEC filed a lawsuit against Ripple, questioning whether its native currency XRP was a security.

As a result of the lawsuit, the MoneyGram-Ripple partnership took a breather… Yet MoneyGram realized it still needed a blockchain settlement system and digital currency to improve its own business.

Shortly after the Ripple deal was shelved, MoneyGram announced a new partnership with Stellar, whose technology is very similar to Ripple’s. And MoneyGram also announced it would use the U.S. dollar stablecoin USDC for cross-border transactions.

It had a glimpse of its business using blockchain and clearly wants it back.

The stablecoin vastly improves MoneyGram’s service by reducing transactional costs with nearly instantaneous settlement in just a few seconds. This is compared to the traditional banking system, which can take approximately three days for settlement. Clearly, this is a massive improvement.

More importantly, the fact that MoneyGram is using a U.S. stablecoin like USDC highlights a trend that could see U.S. stablecoins proliferate across the globe.

Yet SEC Chair Gary Gensler has been critical of stablecoins. Circle, the now-public company behind USDC, is handling an SEC investigation of its own.

This means MoneyGram’s usage of USDC is not without risk. Regulations around U.S. stablecoins have not been written yet.

But if they are written so that they are friendly to the industry, it will be a boon for MoneyGram… And it will be bullish for the United States in maintaining its status as the world’s reserve currency, digital or fiat.

This is an interesting moment for the industry. It turns MoneyGram into a modern-day cross-border payment company. And the decisions that follow will no doubt influence the role of the U.S. dollar globally.

The dinosaur investing in bleeding-edge cars…

We will finish up today with a 112-year-old car company that is manufacturing vehicles for tomorrow’s autonomous taxi service.

We last wrote about the self-driving ride-hailing service Cruise on the heels of it taking in $2 billion from investors. That put the company at an incredible valuation of an estimated $30 billion.

This financing round made General Motors look like a star. It came only five years after the dinosaur had bought Cruise for $581 million.

At the time, it was an unprecedented sum for a seemingly unproven sector. It was very surprising, and many believed GM was grossly overpaying.

Yet during the years that followed, GM stayed at arm’s length. This allowed Cruise to develop and essentially do its own thing. Meanwhile, GM brought in new investors like Honda, SoftBank, and Microsoft.

And now Cruise has come out with another massive announcement.

It expects to have a fleet of one million vehicles before the end of this decade. Keep in mind, we are almost in 2022. So in less than eight years, the company expects to go from 0 to a million.

This is a sign of how quickly it believes it can scale.

What’s even more astonishing is the fact that it believes it can reduce taxi services from $5 a mile down to $1.50 a mile… all while generating $50 billion of revenue at 40% margins.

If achieved, these are very compelling numbers. And the team clearly has the confidence that the technology is where it needs to be today in order to scale that quickly.

I consider Cruise one of the major players in the industry – one that surprised me. Initially, with the GM deal, I thought the company would die under oppressive and ineffective management by GM.

But so far, GM has done the right thing. It stayed hands off, gave the division room to run, and even brought in outside investment to help the division grow. The result is a company that is thriving and might help GM pull itself out of its own terrible situation.

GM has $183.9 billion in debt. And the low 16% margins on the $140 billion in revenue it generates only makes its situation even worse.

However, a smart win like this – in what could become an initial public offering (IPO) worth tens of billions – will go a long way for GM.

I’ll even go so far as to say that with GM set to manufacture the cars for a potentially massive ride-hailing business, it is on a path towards healthier cash flow.

And with this rusty car company trading at a 1.23 enterprise value-to-sales (EV/Sales) ratio, I could make an argument that this company is dirt cheap.

While not exciting, and not a high enough growth company to be a formal recommendation in my investment research services, GM may prove to be a safe place to park cash for a few years as Cruise materializes.

Regards,

Jeff Brown
Editor, The Bleeding Edge

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