When Beth Kindig stepped on the Silicon Valley scene in 2010, many of the technology titans we know today were still in their infancy — Uber [UBER] was still working on its taxi-hailing app and Netflix [NFLX] had only just started expanding its streaming service internationally.
A decade had passed since the dotcom crash, and tech investments were beginning to boom again. Many corporations at the time were looking to digitally transform their businesses but couldn’t understand what separated one cloud company from the hundreds of others.
Kindig was one of the few people who could decipher the technical jargon and translate it for the investment world. She was hired as a venture capital analyst at Sky Group to write reports that simplified complex technical concepts. This whet her appetite, and over the past 11 years, she has worked with more than 300 startups, authored more than 1,000 articles and presented at numerous high-profile technology conferences.
Number of startups Beth Kindig has worked with
Her unique technical understanding fostered a reputation and career that led her to found CitizenTEKK, an online platform with more than 300 tech leaders. It didn’t take long for Kindig to become one of the most trusted technology-focused sources for public markets. Some of her most notable calls were predicting the Facebook [FB] stock dip in the second quarter of 2018 and Uber’s IPO loss in the second quarter of 2019. Kindig has since built out a talented investment team to launch her I/O Fund, which specialises in investing
in tech microtrends.
To gain an insight into the mindset of a tech aficionado, Opto asked Kindig to talk through her journey setting up the I/O Fund, how she analyses companies and what technology themes she’s most excited about.
In 2018, I started to write for the public markets and made some big calls that turned out to be exceptional wins. I called Roku [ROKU] at $30. Our first entry was $16, just after the IPO. Everyone thought it was a company that would get eaten up by the tech giants because Google [GOOGL] and Amazon [AMZN] played in the same arena. At the time, I laid out a clear thesis explaining why its third-party ad network would stave off big tech competitors, which had not yet materialised, and today it’s clear it was correct. We sold for more than 100% gain and re-entered around $29 in December 2018, which we have held since. We’ve held Roku through three 60% or greater drawdowns and now have four-digit returns.
“We’ve held Roku through three 60% or greater drawdowns and now have four-digit returns”
In July 2019, I teamed up with Knox Ridley to launch the premium service. By this point, I’d been writing a weekly newsletter and building an audience. I knew that you could have a really strong tech analyst make great stock calls, but I needed someone with a financial background and portfolio management experience to manage risk. So, I teamed up with somebody who has been managing and looking at investment portfolios since 2007. We launched our portfolio in 2019 and let people know every trade we make, alongside full-length analysis.
Six months before COVID-19 struck, I said Zoom’s product would and could go viral. I explained in great detail how the product was positioned and had a viral mechanic built in. Six months later, it blew up in a viral manner and it was a big deal. Nobody had called that. The virality of that product was something I could see that nobody else saw. We re-entered Zoom at circa $64, have added to our position numerous times since and are still holding. [The stock climbed 333% in the year after Kindig published analysis on 6 September 2019.]
“Six months before COVID-19 struck, I said Zoom’s product would and could go viral”
Around the time the coronavirus pandemic began in 2020, our business really started to get put on the map because cloud exploded. On our premium site, we were talking about all kinds of cloud companies between September and December
of 2019, while cloud was out of favour. I was so adamant that the sell-off in September of 2019 was a buying opportunity and my readers should be positioned in cloud. That was like standing in front of a train because everyone was worried, thinking it was the end of cloud with many stocks being down 50%. Then, it exploded — and that really put us on the map. It was one of those stronger calls where you stand in front of the market as a contrarian. I feel comfortable doing that because I know the products so well. That combination of knowing when to be a contrarian and having a different reality to those who have never really worked a day in tech is where the edge comes from.
In May 2020, we officially told our premium members that we’d combined our money and were a fund. We formed the fund because we assumed that moving forward, we should get audited. We started to approach investing in that way and Ridley began to release his trades in real time. The reason why that’s important is that the question an average Joe in the market needs to answer to is: “Are you buying today?” It’s one thing to call a stock three years ago and another thing to disclose if you’re buying today. Calling stocks is useless to most readers as it could be trading a top. Strategically, we add to key positions but also trim a lot off the top because [you’ve got to] take into account the timing issue with trends. I’m aware of this because I saw startups that were brilliant yet unable to get funding until the timing was right. The combination of knowing what trends are in play and the ones to double down on is important.
We start with quality, in-depth product analysis and that’s completely different to how most companies do it. They’ll begin with financials and that’s the problem. The best tech investors, hands down, are venture capitalists. They’re doing it blind on the financials because the companies don’t have any kind of real revenue growth yet. Or, if they do, it’s not insightful enough to draw proper conclusions from. They’re having to completely rely on key metrics, such as market size, product-market fit, product features and rate of adoption, which describes how a product is being adopted, plus how sticky the retention is.
“We start with quality, in-depth product analysis and that’s completely different to how most companies do it”
We think requiring perfect numbers is counterintuitive to how a tech product grows. If you look at Amazon, [its figures] will be really flat, then, all of a sudden, it completely spikes up with hockey stick growth and takes off. If you’re a financial analyst, you tend to look at the lagging financials first, then you’ll examine the consensus. That’s where a lot of human error occurs because it relies on financial modelling. There’s no edge to that approach. If you were to turn your attention to the consensus of Nvidia [NVDA] during the crypto bust, it cannot accurately forecast what artificial intelligence (AI) will do for their data centre segment. But, if you’re looking at adoption among AI developers of Nvidia’s CUDA platform, that’s where the financials are not representative of opportunity. We were able to confidently call Nvidia the best AI play even when the company reported negative data centre revenue for a year after our original analysis.
We’re watching key levels of sentiment because tech stocks are very sentiment-driven, which means there’s this excitement and exuberance that is behind them. But there’s also extreme fear, and that unjustifiably plummets the price. For example, most recent earnings reports couldn’t have been better for the majority of companies we cover, even if we don’t own them in our universe. We’re probably in oversold conditions because tech, despite the price volatility, is steady on the actual earnings. It’s because of the high rate of adoption across the globe.
“We’re probably in oversold conditions because tech, despite the price volatility, is steady on the actual earnings. It’s because of the high rate of adoption across the globe”
Tech is incredibly competitive. I would say the number one analysis that is needed in the tech space, and people will talk about discounted cash flow analysis because of Warren Buffett and value stocks, is competitive analysis. And if you don’t have that breadth of experience in the tech industry, then it can stunt you a little bit because you have nothing to rely on to make these critical decisions.
Our goal this year is to beat the Ark Innovation ETF at the best of times and the Invesco QQQ ETF in the worst. We want to always be above the indexes and highest-performing fund on Wall Street in tech. You have to be somewhat realistic because one thing that people in tech have to understand is that if you’re a tech investor, you won’t get four-digit gains if you don’t have double-digit losses. For instance, we have some big winners, but we wouldn’t have those if we didn’t hold through certain drawdowns.
“Our goal this year is to beat the Ark Innovation ETF at the best of times and the Invesco QQQ ETF in the worst”
In the short-term, we’re leveraged into connected TV ads. A lot of people think that over-the-top technology and connected TV is a cord-cutting trend. But the message I’ve had for three years is that it’s not — it’s a pay TV ad migration trend. The brands that are paying for ads on TV have had to migrate their budget over to connected TV, and that takes time. But we think that’s finally happening. This is why we’re long on FuboTV [FUBO]. We think live sports’ ad budgets, which have been going to linear television, are going to migrate to over the top.
One thing I’ll probably continue to become more vocal on is that Ridley and I think the five-to-10-year opportunity will be AI. It will be four times larger than mobile. Also, as far as the general narrative goes, something we might think differently about is that I don’t think the semiconductor shortage is a negative. It’s showing us there’s an increased demand for semiconductors. I don’t believe that’s ever going to change in the next five years. I’d say they’re moving from a cyclical to a secular trend. The other trend I’d say is augmented and virtual reality. That’s a space that’s going to challenge a lot of investors as they may not understand the opportunity.
This article was originally published in our Opto Magazine. You can purchase your copy via our Opto Shop.
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