✈️ Airline shorts

...and Nintendo's Nook-tastic quarter
 

Nintendo pulling a Disney

 
Yesterday's Market Moves
 
Dow Jones
30,211 (+0.76%)
S&P 500
3,774 (+1.61%)
Nasdaq
13,403 (+2.55%)
Bitcoin
$33,802 (+2.83%)
Dow Jones
30,211 (+0.76%)
S&P 500
3,774 (+1.61%)
Nasdaq
13,403 (+2.55%)
Bitcoin
$33,802 (+2.83%)

Hey Snackers,

We know you love Snack Facts. So in honor of Black History Month, we'll be featuring facts and stories covering the intersection of race, finance, and the economy. Have a fact to share? Submit here.

Stocks rebounded yesterday after their worst week since October – and one of the wildest investing weeks in recent history. About that...

Short

Hedge funds shorted American Airlines stock — then Reddit "shorted" hedge funds

Don't knock the disposable earbuds... American Airlines has two major things not going for it. One: it's an airline during a deadly pandemic. Two: it lost a record $8.9B last year, and doesn't expect a rebound any time soon. That's partly why American has been the most-shorted US airline. Coincidentally (but not at all), American stock soared 17% from Monday to Thursday. And that's likely partly thanks to Reddit.

  • Many meme stocks celebrated on the r/wallstreetbets subreddit are heavily-shorted companies that hedge funds are betting against. Like: GameStop and Bed Bath & Beyond.
  • Individual investors are participating in mass meme stock buying campaigns. It's part experiment, part profit-seeking, and part rebellion – a chance to "get back" at Wall Street insiders, who Main Street still resents for the wreckage of the '08 financial crisis.

The DL on short sells... So how exactly are they "getting back" at Wall Street? It all goes back to short selling: Basically, some professional investors borrow shares of a company whose stock they think will fall. Then they sell those shares, hoping to buy them back later at a lower price and return them to the broker. If the shares fall, their profit = the difference between the price when they sold the shares and the price when they bought them back (minus interest on the loaned stock, and any transaction costs).

  • By piling into shorted stocks, small investors were able to drive up share prices, causing some hedge funds to lose billions. Some funds bought back shares to avoid even more losses, which drove up prices even more.
  • Shorting is risky because the loss potential is theoretically unlimited, since the shorted stock could keep rising. Meanwhile, the gain potential is limited to what the shorter sold the shares for (because in the "best" case scenario, they can fall to $0).
  • Buying a stock is the opposite. The most you can lose is the money you invested, while your potential gain is theoretically unlimited. But short selling has some positives: for example, it can expose overvalued stocks.
THE TAKEAWAY

Retail investors turned the tables... on professional investors like hedge funds. Like Matt Damon in Good Will Hunting standing up to the snooty Harvard student, retail investors said: "How do you like them shorts?" It's not clear how much we'll see this trend in the future. And it's possible that professionals are getting in on the Reddit buying, too. After last week, it's likely that hedge funds will reevaluate their positions in heavily shorted stocks.

Nook

Nintendo has its best quarter since 2008, but it needs to be more like Disney

The Bank of Nook gets paid... Nintendo just dropped its best quarterly earnings in 13 years. The 131-year-old gaming legend brought in an expectation-crushing $2.2B in profit last quarter, and raised its annual forecast for the second time (#MarioFlex). Nintendo shares jumped 7% on the holiday Switch-mania:

  • Nintendo sold a record 11.6M consoles last quarter, even though Switch has been out for nearly five years. Sales jumped 7% from a year earlier.
  • Now it's expecting full-year sales of 26.5M units. But some analysts are saying that's modest, since it has already sold more than 24M Switches.

Sweats. Mask. Switch... In 2020, the Switch wasn't just a gaming console... it was a lifestyle product. There were three strong winds at Nintendo's back positioning it for a blowout year:

  • Animal Crossing: New Horizons. The long-awaited blockbuster title was an instant hit that boosted both hardware and software sales.
  • Perfect timing: New Horizons dropped in March 2020, right when pandemic lockdowns hit. The virtual island game filled with (very) colorful animals was a perfect escape.
  • Competitive edge: While Sony's PlayStation 5 and Microsoft's Xbox faced production/logistics setbacks that limited sales, Nintendo was able to deliver on demand.
THE TAKEAWAY

Nintendo should pull a Disney... because it might have just hit peak console (Switch saturation is real). That's why Nintendo wants to monetize its characters outside of hardware/software. Disney is a master at this: it makes money off its characters in movies, sequels, and spin-offs — but also through theme parks, cruises, toys, and merch (Elsa-themed everything). Nintendo could benefit from a similarly self-reinforcing ecosystem. Unlike other major console-makers, it designs most of its own games (85% of them). Nintendo could cash in on that precious IP in a number of ways, including the upcoming Super Nintendo World theme park in Japan.

What else we're Snackin'
  • Stim: Biden met with Republicans who are proposing a smaller stimulus package, which includes $1K checks (instead of Biden's $1.4K ones).
  • PJ: Private jet company Wheels Up is going public through a SPAC merger at a $2B+ valuation. It'll be the first publicly traded pure-play private jet stock.
  • Polished: Silver prices hit an eight-year high as traders promote it on the r/wallstreetbets subreddit.
  • IPO: Customer experience management company Qualtrics, which was spun off from software giant SAP, jumps after going public.
  • Fashun: Online clothing retailer Asos buys Topshop, Topman, and other brands in a ~$450M deal – but it hasn't agreed to buy physical stores.

🍪 Thanks for Snacking with us! Want to share the Snacks? Invite your friends to sign up here.

Tuesday
  • Earnings expected from Amazon, Google, Chipotle, Pfizer, Exxon, and UPS

Authors of this Snacks own shares of: Microsoft

ID: 1506574

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