Weekly Investment News and Analysis

H1 2022 was a brutal start to the year — the Nasdaq was down almost 30%, for its worst first half on record, the Dow Jones Industrial Average declined 15%, for its worst first-half performance since 1962, and the S&P 500 closed down over 20%, for its worst first half since 1970. US markets climbed a bit on Friday, but the major indices were still down for last week, after having posted weekly losses in four out of the last five weeks. At a time when U.S. venture dollars are slowing down, CIBC Innovation Banking is announcing $1.5 billion in growth capital commitments, dubbed “Unicorn Fuel,” to focus on later-stage companies across software, life sciences, healthcare and clean tech industries. Sophic Client UGE (UGE-TSXV, UGEIF-OTC) secured $25 million to deploy six community solar projects in Maine. Sophic Client Clear Blue Technologies (CBLU-TSXV, CBUTF-OTC, 0YA-FRA) announced a $4-million non-dilutive Government of Canada financing. Draftkings was fined $100,000 in Ontario for advertising violations. EToro seems likely to abandon its deal to go public via SPAC merger. Short video app Triller confidentially filed for a U.S. IPO. Klarna will raise cash at a US$6.5 billion valuation, in dramatic 85% down round. Nio shares slid Wednesday after a short seller accused the Chinese electric vehicle maker of artificially inflating its financial figures. Chinese electric vehicle maker Li Auto will raise US$2 billion from U.S. investors in a new stock offering. Tesla lays off nearly 200 Autopilot workers, and shutters its San Mateo office. Facebook warns of engineer job cuts, and a sharp downturn ahead. The FCC Commissioner writes to Apple and Google about removing TikTok. FTX says it is not in active talks to buy Robinhood. Crypto hedge fund Three Arrows Capital plunges into liquidation. Crypto broker Voyager Digital (VOYG-TSX) suspends withdrawals.

Last week was a welcome relief for markets, as the Nasdaq ended the week up 7.5%, and the S&P 500 was up 6.6% for the week. BlockFi signed a term sheet with crypto exchange FTX to access a US$250 million revolving credit line. Polestar goes public amid uncertainty around EV stocks, via a SPAC. Elon Musk says Tesla’s new factories are ‘gigantic money furnaces’ that are losing billions of dollars from EV-battery shortages and supply-chain snags. Shares of Zendesk Inc. soared 29.5% in premarket trading Friday, after the customer experience platform company confirmed a deal to be acquired by an investor group in an all-cash deal valued at about US$10.2 billion. DocuSign’s CEO Dan Springer is stepping down, the virtual signature company announced Tuesday. DocuSign did not specify why Springer was leaving, but the company’s share price has fallen more than 75% over the past year. Apple’s mixed reality headset will “likely release in January 2023,” according to reliable supply chain analyst, Ming-Chi Kuo. Meta revealed VR headset prototypes designed to make VR ‘indistinguishable from reality’. A Congressional report said Robinhood understated liquidity problems during meme stock craze. Intel delays groundbreaking ceremony for Ohio plant amid uncertainty over chips legislation. Tesla and California utility PG&E launched a new program that will pay eligible Powerwall owners to send extra electricity to the grid when it’s vulnerable to blackouts. An electric Mercedes-Benz drove 747 miles without recharging, nearly twice the range of Tesla’s Model S. In Canada, Toronto-based startup, Ataccama secured $194 million in growth capital from American private investment firm Bain Capital. Twitter partnered with Shopify to bring merchants’ products to Twitter Shopping. Shopify launched around a 100 new features last week, including in social commerce, local shopping offers with Google, cryptocurrency, B2B selling. Sophic Client, Reklaim (MYID-TSXV, MYIDF-OTC) closed $1.3 million non-brokered private placement and streamlined operations to cash neutral.

Major indices reverted back to their pre COVID peaks, and the S&P posted its worst week since March 2020 despite a slight rise yesterday, according to Morning Brew. M&A is likely to pick up, and is likely to be a significant driver of value for Canadian tech firms in 2022, according to PwC. Telus Corp. (T-TSX) said Thursday it agreed to pay $2.3 billion (US$1.8 billion) plus assume $600 million in debt to buy LifeWorks Inc (LWRK-TSX), a Toronto-based human resource consulting and technology services company in the health and wellness sector. Thirty-five privately-held Canadian tech startups are on their way towards reaching $1 billion in annual revenue, according to a new data-based initiative from Kitchener-Waterloo tech hub Communitech. Voyager Digital (VOYG-TSX) signed a term sheet for US$200 million and 15,000 BTC revolving line of credit with Alameda Research. Klarna Bank AB is considering raising fresh funds at a significantly lower valuation than it achieved a year ago, according to people familiar with the situation, a sign of the punishing environment for tech companies. Roku stock jumped after unveiling Walmart e-commerce partnership. Shares of e-commerce companies Jumia and MercadoLibre plummet following Insider’s report about Amazon’s expansion plan in Africa and South America. Alibaba, NIO stocks soar after report Ant Group OK’d to set up financial holding company. The U.S.-listed shares of China-based companies were seeing big and broad gains in premarket trading Friday, after Reuters reported that China’s central bank accepted Ant Group’s application to set up a financial holding company. MicroStrategy CEO Michael Saylor says there’s no margin call on its bitcoin loan and it has plenty of collateral. Coinbase stock falls 15% as cryptocurrencies lose billions.

Late last week, major stock indices suffered another leg down, with the NASDAQ having an especially bearish close on Friday. Clio, a Canadian provider of cloud-based legal technology, announced it had achieved “Centaur” status, a title reserved for private SaaS companies that achieve more than US$100 million in annual recurring revenue (ARR). To date, approximately 150 companies globally have passed this threshold, making this designation seven times rarer than the now plentiful tech unicorn. Elon Musk said SpaceX’s Starlink will not go public for another three to four years, CNBC reported. Twitter will now give Elon Musk ‘firehose’ data access to settle bot complaints, and the Texas Attorney General opened an investigation of Twitter bots. Twitter, at the same time, is gearing up for its most ambitious quarter of user growth, leaders of the social media company’s consumer products division told staff on Tuesday. Alibaba shares dropped 8% after Jack Ma’s Ant Group and regulator squash talk of revived IPO. At the same time, DiDi Global and two other Chinese firms soared on WSJ report that probe will end. U.S.-listed shares of Chinese tech firms rose amid signs that Beijing’s crackdown on the Chinese tech sector is easing. Roku stock rebounded 20% amid reports of a possible acquisition by Netflix. Apple’s mixed reality headset is now said to be coming in Q2 2023 and the company announced a Buy Now Pay Later feature amid a services push. Meta is reportedly scaling back plans for its AR glasses, pivoting away from marketing Portal as a consumer device. Meta also halted development of Apple Watch rival with two cameras. Seventy-three percent of “affluent” investors in Asia intend to hold some form of digital assets by the end of 2022, according to a new report from consulting firm Accenture. TSMC plans to start mass production of new 3nm ‘M2 Pro’ chip later this year.

The market had another down day Friday, as the NASDAQ closed the week down about 1%, after a bit of a reprieve the previous week. Meanwhile, bearish headlines continue to pile up. Fidelity cut Stripe and Reddit valuations amid the tech stock downturn. Forbes and Seatgeek scrapped their SPAC plans. Tiger Global Management, has lost more than 50% of its value in 2022 including a 14.3% drop in May, according a report by CNBC. Microsoft cut earnings and revenue guidance, citing a stronger U.S. dollar. Venture capital investment is declining faster in China than anywhere else, according to data from Preqin. The pace of investing fell 44% in the first four months of the year to US$24.7 billion compared to a year earlier. Elon Musk has a “super bad feeling” about the economy and needs to cut about 10% of Tesla jobs. At the same time, tech blog, The Verge, had a candid take on Elon Musk’s recent news, in a take, which many non Tesla bulls are well familiar — Elon Musk says Tesla’s fake robot might be ready by September 30th. GM is slashing prices for the Chevy Bolt amid high demand for electric vehicles. Sophic Client, Clear Blue Technologies (CBLU-TSXV, CBUTF-OTC, 0YA-FRA) closed a second tranche of a unit offering, for a total of $1.64 million raised. Sophic Client, Swarmio Media Holdings Inc. (SWRM-CSE, SWMIF-OTC) announced the closing of an oversubscribed private placement of common shares for proceeds of $1.16 million. Clear Blue was also recognized as #13 on the “Future 50 Fastest-Growing Sustainable Companies in Canada”.

The Dow Jones Industrial Average jumped 6.2% in last week’s stock market trading. The S&P 500 index leapt 6.6%. The Nasdaq composite popped 6.8%. The small-cap Russell 2000 ran up 6.55% – a refreshing change after weeks of declines. Sand Hill Road’s doomsayer-in-chief—Sequoia Capital—is back with a warning to its startup founders: Don’t expect a recovery from the current market downturn to happen quickly. 15,000 startup employees were laid off in May. This week’s cuts bring this year’s total to over 28,000, per Layoffs.fyi, compared to about 10,000 total in 2021 and a staggering 80,000 in 2020. 25 companies that listed during the SPAC boom of 2020 and 2021 have already issued warnings that they could go bust within a year, according to a data analytics firm. These blank-check vehicles raised $96 billion in the first quarter of 2021 alone, according to the Harvard Business Review. A growing number of Chinese tech start-ups, , are willing to list shares publicly in China at valuations lower than during private funding rounds in so-called blood listings, according to Reuters. Snap’s warning sent shock across digital advertising as investors fled social media stocks. Cathie Wood’s ARK Invest bought almost US$44 million in shares of Nvidia on Thursday, after the tech company reported its first-quarter earnings. A Twitter shareholder sued Elon Musk for market manipulation. Apple could be in talks to buy EA gaming, Disney and Amazon also potential suitors. iPhone production plans said to be 20 million down on consensus expectations. Samsung will reportedly produce 30 million fewer smartphones this year.
Although the broader market has free fallen for weeks now, Canadian microcap stocks have been declining since March 2021. And while we won’t call a bottom, microcaps look VERY cheap for long-term investors. Take advantage of this time to do your research and find the winners that will come out of this downturn and provide outsized returns. Please feel free to reach out to SophicCapital if you would like to dig into our companies.

Some stats from Morning Brew put recent stock market volatility into perspective. The Dow posted its eighth straight weekly loss, which is its longest weekly losing streak since 1923. The S&P has lost ground for seven straight weeks, its longest losing streak since 2001. The Nasdaq has dropped more from its peak last November than when the world shut down in spring 2020. We repeat: The literal world shut down and the Nasdaq is doing worse now. Tiger Global, the hedge fund known for making big bets on technology companies, slashed its shareholdings and dumped stakes in companies such as Netflix and Rivian as it suffered heavy losses during this year’s stock market rout. ‘Big Short’ investor Michael Burry revealed a bet against Apple stock — and built stakes in Alphabet and Meta last quarter. Coinbase shares jumped Tuesday after the largest cryptocurrency exchange in the US said it’s pulling back the pace of hiring to strengthen its businesses during a slump in the US$1.4 trillion crypto market. Southeast Asian ride hailing and food delivery company Grab said its business is recovering as the region reopens from Covid-19 lockdowns. Cisco Systems forecasts revenue drop, blames China lockdowns. China’s Tencent reports no revenue growth for first time. Apple execs recently presented augmented reality headset to company board, suggesting product is close to launch. Facebook parent company Meta Platforms has plans to monetize WhatsApp. Your online behavior and location are shared with advertisers 747 times a day. Square to offer Afterpay’s BNPL at brick-and-mortar stores. Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker, is considering building a semiconductor factory in Singapore to help address a global supply shortage, according to people familiar with the matter. As investor conferences gradually resume in person, Sophic clients Renoworks Software (RW-TSXV), Smart Employee Benefits (SEB-TSXV), Swarmio Media (SWRM-CSE), and Edge Total Intelligence (CTRL-TSXV) attended the Planet MicroCap Showcase 2022 conference in Las Vegas recently. Sophic Client Clear Blue Technologies’ (CBLU-TSXV) CEO, was on BNN Bloomberg this week to talk about Smart Off-Grid energy Voyager Digital (VOYG-TSX) announced a common share private placement of approximately US$60 million anchored by leading crypto companies.

Other than a likely short covering rally on Friday, the pain in growth stocks continued through last week. As Shopify’s (SHOP-NYSE, SHOP-TSX) stock price continued to slide, the company’s senior executives are putting on a public display and promising to personally buy chunks of the firm’s shares on the open market. This all came a few days after a filing showed Uber CEO Khosrowshahi bought US$5 million of the company’s own beaten down stock. Uber CEO also told staff, the company will cut down on costs, treat hiring as a ‘privilege’. PopReach (POPR-TSXV) closed a US$33 million in credit facilities with Bank of Montreal. Instacart, the biggest online grocery in the U.S., has confidentially filed to go public this year, the company said, confirming an earlier report by Bloomberg. Goldman Sachs is exiting work on most SPACs because of liability concerns as regulators tighten guidelines, report says. Twitter CEO Parag Agrawal said Friday in a series of tweets that he still expected Elon Musk’s purchase of Twitter to close, “we need to be prepared for all scenarios,” explaining why he made management changes and is acting to control costs. Salesforce has sold out of the last of its shares in data-analytics software maker Snowflake, according to a regulatory filing on Friday. Salesforce, which makes investments through its Salesforce Ventures unit, still owns a stake in five public companies, including Robinhood and Monday.com, the filing shows. Tiger Global has been hit by losses of about US$17 billion during this year’s technology stock sell-off, marking one of the biggest dollar declines for a hedge fund in history. Ark Invest’s 75% decline in its flagship ETF hasn’t stopped investors from pouring US$1.3 billion in the fund in 2022. SoftBank is cutting its startup investments 50-75%. Samsung is in talks to hike chipmaking prices by up to 20%.

Shopify’s shares plunged on Thursday after the e-commerce company announced plans to make a big fulfillment acquisition even as its revenue growth slows dramatically. Neo Financial has become Canada’s latest unicorn tech company after securing a $185 million Series C round. Neo is one of the quickest Canadian tech companies to reach unicorn status. Stellantis will spend US$2.8 billion to increase production of electric vehicles at two of its Canadian plants, the company said on Monday. About a third of the fresh funds will come from the Canadian government and the Ontario government. Elon Musk’s decision to accept some foreign investors as part of his US$44 billion buyout of Twitter runs the risk of inviting the kind of regulatory scrutiny over U.S. national security that social media peer TikTok faced, legal experts say. Warren Buffett bought US$600 million worth of Apple last quarter, may be buying more now. Peloton is seeking a minority investment to help stabilize its business as an e-commerce slowdown and eased Covid restrictions hurt its sales, as the bike maker is looking to sell 15% to 20% of itself to a private equity firm or industry peer. The U.S. SEC is investigating Didi Global’s 2021 initial public offering where it raised $4.4 billion just before it was revealed to be under a cybersecurity investigation by Chinese authorities. The SEC has also added more than 80 Chinese companies, including e-commerce giants JD.com and Pinduoduo, to a list of Chinese stocks that face delisting risks for failing to meet disclosure requirements. Microstrategy said it faces a margin call if Bitcoin falls to US$21,000. Chips for chipmaking machines are affected by chip shortage, says TSMC and Intel. President Joe Biden’s administration said it will provide US$3.1 billion in funding to support the domestic production of advanced batteries that will spur electric vehicle adoption.

Last week, capped off yet another tough month in the markets. Selling accelerated into the end of the week. According to Morning Brew, the US stock market just had its worst month since March 2020 as the S&P dropped 8.8%, the Dow 4.9%, and the Nasdaq, 13.3%—which marks that index’s worst month since 2008. While blog posts and trading memes are likely to continue — in truly market-neutral manner, businesses march on, regardless of market volatility. Sophic Client, Clear Blue Technologies (CBLU-TSXV, CBUTF-OTC, 0YA-FRA) announced the closing of the initial tranche of a unit offering, for around a million dollars. The Company expects to complete one or more additional tranches of the Offering in the coming days. VitalHub (VHI-TSXV) recently closed a $17.5 million bought deal public offering. Venture capital activity in Canada hit an all-time record high in the first quarter, with US$3.5 billion in investment across 213 deals, up from US$3 billion (across 276 deals) in the year-earlier quarter, according to KPMG. Amazon reported a quarterly loss leading to the stock having its worst day since 2006. Facebook briefly dropped 6% after Bloomberg incorrectly published disappointing forward guidance for revenue. Robinhood’s net revenue dropped 43% in the first quarter as the brokerage app saw trading activity cool dramatically versus the previous year. Elon Musk raised about US$8.4 billion through the sale of 9.6 million Tesla shares this week. Fidelity Investments said on Tuesday it will offer investments in bitcoin through its 401(k) accounts later this year, marking the first such move by a major retirement-plan provider. U.S.-listed shares of China-based technology companies soared in premarket trading Friday, after The Wall Street Journal reported that Chinese regulators were preparing to pause its campaign against technology companies, as they look to stem the deterioration in China’s economy.

Toronto’s tech sector once again swept venture funding records away in the first quarter of 2022, according to a new report from briefed.in. Despite a seemingly favourable start to the year, there are signs Toronto’s roaring tech sector may cool off in the coming quarters. The city’s previous venture funding record, which totalled $1.7 billion, was set in Q2 2021. Shopify is in talks to buy tech startup Deliverr in a deal, which could value San Francisco-based Deliverr at more than US$2 billion. At the same time, Amazon announced a new program will allow Prime members to buy products on platforms that aren’t Amazon.com, but using their Amazon account details. Importantly, those products will then be delivered like Amazon products, with a commitment to two-day delivery. The move will put Amazon at odds with the likes of Shopify, which provides software to merchants to run online stories, and delivery companies like FedEx and UPS. Shares of Didi Global dropped 17% in premarket trading on Monday, after the China ride-share group over the weekend announced a 12% drop in fourth-quarter revenue from a year earlier and plans to vote on a delisting from the New York Stock Exchange. Walt Disney stock heads for 17-month low as Florida, streaming troubles weigh. Netflix stock slid 27% premarket and dragged down Disney, Roku, and Warner Bros, after the Company’s first subscriber decline in years. Snap reported a jump in users for the first three months of the year but warned global problems such the war in Ukraine weighed on demand for its digital advertising, and it forecast a weaker second quarter than expected. Shares fell 10% in after-hours trading. Musk to explore potential tender offer for Twitter, has US$46.5 billion in committed financing for deal. Crypto stocks perform worse than cryptocurrencies, according to data from CoinMarketCap FactSet.

Viral Nation, announced an initial funding round of $250 million led by Eldridge, with participation from Maverix Private Equity, to fuel the company’s technology and market growth strategies. Founded as an influencer marketing agency in 2014, Viral Nation has evolved to meet the needs of an impressive roster of Global 500 clients. Bigg Digital Assets Inc. is reporting that its subsidiary, Netcoins, experienced a security breach that allegedly allowed a customer to fraudulently withdraw an estimated $1.58 million. The startup reported the software vulnerability was fixed within an hour. Canada has lost $154 million in cryptocurrency through three breaches and one fraud between 2011 and 2021, according to a report from Crystablockchain.com. As the Twitter – Elon Musk drama unfolds, including Elon Musk now being sued by former Twitter shareholders; Twitter Inc. announced on Friday that the company has adopted a shareholder rights plan, or “poison pill,” that will reduce the chances that a person or group will take control of the company. The announcement comes after Elon Musk’s offer of US$54.20 per share was made public on Thursday. Bucking the gloom of other tech equities, shares of Indonesian ride-hailing and e-commerce company GoTo rose as much as 23% after it raised US$1.1 billion in its domestic stock market debut. Oracle-backed server processor startup Ampere Computing said Monday that it plans to go public, filing initial confidential paperwork with the SEC. Epic Games said on Monday it had raised US$2 billion from Sony Group Corp and the family owned holding company behind the Lego Group, valuing the “Fortnite” creator at US$31.5 billion. Charlie Munger’s Daily Journal halved its Alibaba stake to 300,000 shares last quarter. The newspaper publisher nearly quadrupled its Alibaba holdings during the second half of 2021. Amazon is hitting its sellers with a 5% fee due to inflation and increased fuel costs, and there’s a good chance products will get more expensive as a result.