The biggest business story for the week (or at least the one the financial media was paying most attention to) was that the March Federal Reserve meeting produced no major policy changes and that the Fed still believes they will make three interest rate cuts in 2024. Going into the meeting, some market anxiety had been building that hot inflation readings in early 2024 could potentially alter the Fed’s plans for lowering interest rates this year. Consecutive weekly declines in the S&P 500 (for the first time since October) partly reflected these concerns. However, markets reacted favorably to the reassuring forecast, with the S&P 500 setting record highs on consecutive days following the meeting and producing the index’s best weekly performance thus far in 2024.
Next week: March's Opportunity Report. Keep an eye on your email for more details.
Other worthwhile reads:
Global Era of Negative Interest Rates Ends as Japan Goes to Zero
https://www.wsj.com/economy/central-banking/global-era-of-negative-interest-rates-ends-as-japan-goes-to-zero-07e37818
While in the U.S. we are talking about cutting interest rates this year, Japan just hiked its short-term interest rate for the first time since 2007. This week, the Bank of Japan eliminated its policy rate of negative 0.1% and set a new short-term interest rate target range of 0%-0.1%. Though a nearly trivial 10-basis-point change in magnitude, this marks an important milestone for global monetary policy normalization: Japan was the last country to end the experiment of negative interest rates.
Topgolf Callaway Trims Gain After Denying Report on Deal
https://www.bloomberg.com/news/articles/2024-03-20/topgolf-callaway-soars-on-report-it-s-exploring-sale-spinoff
On Wednesday, shares in Topgolf Callaway Brands (MODG), which has been profiled by Boyar Research multiple times, were up by as much as 15% based on a report that appeared in a South Korean newspaper that major shareholders of MODG were trying to orchestrate a deal where an unidentified South Korean investor would purchase Callaway’s golf equipment business and TopGolf would be spun-out. Shares retraced some of the gains (closing up 8.8%) after the company issued a press release denying knowledge of any potential transaction. However, the press release ended by stating, “We do not intend to comment further on this topic, and we assume no obligation to make any further announcement or disclosure should circumstances change.”
While we have no knowledge of any pending transaction, it is worth noting that a Korean buyer for TopGolf would not be out of the ordinary, as Korean firms have taken an interest in U.S. golf before with Fila Korea owning 51% of golf equipment company Acushnet (operator of the Titleist brand) and a Korean private equity firm purchasing golf equipment maker TaylorMade in 2021. Given that private equity firms own a substantial amount of MODG it would not surprise us if they were looking for some sort of liquidity event. Despite rising ~8% this year MODG shares are down ~27% over the past twelve months and are selling at a significant discount to our estimate of their intrinsic value.
Reddit Shares Soar in Long-Awaited IPO
https://www.wsj.com/finance/stocks/reddits-stock-jumps-in-ipo-9b1536ee?mod=lead_feature_below_a_pos1
Reddit’s shares advanced by 48% in its stock market debut on Thursday, a day after Astera Lab’s went public and surged by more than 70% in its first day of trading (with momentum continuing on Thursday and Friday with shares advancing 3% and 9% respectively). At its IPO price, Reddit was valued at $6.4 billion, not bad for a company that has been in business since 2005 and has yet to turn a full-year operating profit. The IPO market has been dormant of late but perhaps two initially well-received IPOs will help open the market. If it does, that could be a positive for IAC, a holding company that focuses on subscale, rapidly growing, pre-IPO businesses and has been profiled in Boyar Research.
IAC holds a significant minority interest in Turo, a peer-to-peer car-sharing service (think Airbnb for vehicles). IAC first started building its stake in the unicorn in 2019 and has amassed ~30% ownership, plus a warrant to purchase an additional 10% (at a $2 billion valuation). Turo filed to take its shares public and was rumored to be seeking a late-2023 IPO. That did not come to pass, though, with Turo possibly waiting for the IPO market to heat back up.
While the date of the eventual public listing remains uncertain, a successful IPO of Turo could be a significant catalyst to unlock hidden value for IAC, whose stake in Turo would then have a readily determinable fair value and become accurately reflected on IAC’s balance sheet. At 3x 2023 sales of $880 million, Turo would fetch a $2.6 billion valuation. We use this conservative assumption while noting that IAC’s most recent purchase of Turo equity in early 2023 pointed to a ~$3 billion valuation.
Unlike Reddit and many other unicorns that seek IPOs, Turo is a profitable company on both adjusted EBITDA ($49 million in 2023) and GAAP net income ($16 million), though we imagine IPO investors may be more focused on revenue growth (18% in 2023) and longer-term profit potential in determining the value of the company. Either way, IAC’s 30% stake is worth far more than the $379 million it has cumulatively invested in Turo that is recorded on the balance sheet.
Bitcoin Had a Flash Crash
https://www.bloomberg.com/opinion/articles/2024-03-20/bitcoin-had-a-flash-crash
“The price of Bitcoin against Tether’s USDT stablecoin fell to as low as $8,900 on BitMEX late Monday, while the largest cryptocurrency was trading above $66,000 on rival venues. The price of Bitcoin on the exchange quickly recovered and has been trading in-line with the rest of the market since.”
Extreme volatility is nothing new for cryptocurrencies, but a sudden drop of >80% could be enough to rattle even the staunchest of the “HODL” crowd. That said, the incident appears to have been isolated to a single crypto exchange that experienced “aggressive selling behavior involving a very small number of accounts that exceeded expected market ranges.” In other words, someone dumped a boatload of Bitcoin all at once and, at least momentarily, there was no bidder to absorb that volume at market prices. Nevertheless, we were surprised this did not get more media attention given how much bitcoin fell in price on this exchange.
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Important Information: Performance Information. Past performance does not guarantee future results. The reports in this sample are for informational purposes only and the performance of the stocks selected is not indicative of the performance of all the stocks profiled in Boyar Research. The performance of the stocks selected and the performance of the stocks in Boyar Research may in fact diverge materially. Additional information regarding the performance of other companies featured in Boyar Research is available from Boyar Research upon request. This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research. Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Clients of an affiliate of Boyar Research and employees of Boyar Research own shares in Topgolf Callaway and IAC. .