While North America has turned into Meta’s best growth market for WhatsApp, India is arguably the nation with the most developed opportunity. 500 million people there religiously use the app to communicate, and also do things like call an Uber or message a customer service team. It’s more of a super-app there in terms of common use cases vs. being more of a pure messaging app in the United States.

That difference creates a highly compelling opportunity for India to lead Meta’s WhatsApp monetization push. One of the most important tools Meta has to support this journey is unlocking payments services within the app. That makes all use cases more actionable, more end-to-end within the WhatsApp ecosystem and more profitable for Meta, considering inevitable transaction fees.

This week, Meta received approval for WhatsApp Pay to uncap its current 100 million user limit in India. The service can now roll out to another 400 million more users and unleashes the true potential of how financially impactful this app can be. Full speed ahead… in a gigantic, young, growing, business-friendly, USA-friendly, democratic, rapidly modernizing nation. Exciting news. We don’t quite know how material this opportunity can be, as Meta does not split out WhatsApp or India revenue. All we know is that WhatsApp click-to-message powered 48% Y/Y growth in its other revenue segment to reach 1.1% of total revenue last quarter, and we do know that payments is a big piece of effectively monetizing this app over time.

Free cash flow does not work well as a metric for consumer discretionary brands and companies that lend money. For the first example, free cash flow is heavily influenced by inventory fluctuations and new store opening projects. For the second example, free cash flow is essentially a byproduct of change in loan balance, where liquidating loans props up cash generation and vice versa. I don’t think including those names in this comp sheet, like I do for income statement comp sheets, is valuable or productive.

Two more notes:

Happy New Year Investor Nerds. 2024 was a year loaded with geopolitical chaos, macro volatility and yet strong index-level returns. Markets are undefeated in their ability to climb “walls of worry” over the last 100 years. Gotta love investing in the U.S. stock market. After a year of large outperformance in 2023, the portfolio essentially performed in line with my S&P 500 benchmark. I comfortably beat the high beta benchmark. That’s expected, considering my portfolio is a mixture of high and low beta and also that SPY outperformed high beta gauges like Ark’s funds. I would be worried if that didn’t happen and really do think the S&P is the most fair benchmark to use here. In-line performance is something I find encouraging, as I know I will not be able to outperform major benchmarks by large margins every year. That’s not realistic, and maintaining the delta from 2023 is satisfying.

2024 was the year where it again became apparent that profitable compounding, AKA the 8th wonder of the world, will overcome everything else eventually. It will trump transitory monetary headwinds, deeply negative investor sentiment and perceived risks that do not impact overall financial success. Every single time.

It was the year when it became clear that not all 2021 bubble darlings were losers and zeroes. Many simply got way ahead of themselves on valuation and endured needed resets as we experienced one of the most aggressive fed hike cycles in recent history. These companies weren’t dead, they were simply hibernating, refocusing on earnings rather than growth, working toward positive earnings inflection and awaiting the slightest sign of an easier Fed. That’s exactly what we got and companies like SoFi, Lemonade, and so many others aggressively broke out of bases right on cue.

This year provides another welcome dose of compelling evidence that tells me sticking to my fundamental research, commanding strong execution and reacting to violent swings in forward valuation multiple is the correct approach for me. It reinforces my motivation to stay the course as firms sometimes progress on their financial journeys without a stock reacting accordingly. While that counterintuitive combination can sometimes play out for years, the longer it does, the more the spring coils for future returns. I’ve said it before. and I will say it again. Financial value creation will eventually be recognized in stock price. Every time.

I expect 2025 to look a lot like 2024. The general trend is monetary accommodation and most valuations, aside from some sporadic pockets of froth, are far more reasonable than during the pandemic bubble. Even considering today’s higher rate environment, market discussions are “does this company deserve 30x earnings and a 1x PEG?” They are not “does this company deserve 30x sales even though it’s 5 years away from making money?” That is undeniably healthier. Combining a supportive backdrop and mainly compelling valuations, I think risk/reward is relatively favorable. I don’t think we should be confidently expecting another year of 30%+ index-level returns, but I do think there’s a great chance for more modest positive returns. And I do think there are still pockets of extreme value to be taken advantage of. Max readers have seen me add to those places in recent weeks and months.

Macro should remain accommodative. Following the scare from the last Fed meeting, we got a highly encouraging PCE print, while real-time shelter metrics clearly point to more disinflation ahead. That paired with distancing ourselves from the bird flu, easier Y/Y inflation comps ahead and modest labor market weakening should give the Fed leeway to cut rates 3-4 more times in 2025 (who knows what the actual number will be) and should feed better capital market liquidity and overall risk appetite. There will surely be fits and starts and material swings in rate expectations as pundits react to every little datapoint. At the end of the day, however, I expect a dovish 2025 Fed. We could also see some material deregulation in 2025, which could be another potential tailwind for earnings growth.

With all of this said, my current bias is toward accumulating more shares of stocks that haven’t enjoyed sharp multiple expansion. That will remain the case unless inflation sharply accelerates and monetary dovishness flips or unless multiples reach greedier, more egregious levels. Again, I don’t anticipate parabolic index-level moves or explosive, vastly above-trend returns. I also don’t expect sharp valuation resets or tanking profit estimates like we saw in 2022. I am cautiously optimistic that this will be a slow, boring year of modest stock returns and stronger fundamental company progress. I reserve the right to be wrong, and will react accordingly if I am. 

DKNG’s hold rate bounced back to 10.9% this past week in New York. Entering this week, its month-to-date hold rate was roughly 7% and this result brings that up to 8%. This still compares unfavorably to DKNG guidance calling for a 10% handle, which creates real risk for reaching quarterly targets. As a reminder, hold rate sharply impacts revenue and profit dollars.

It’s easy to pay too much attention to this metric on a weekly basis, and I don’t think that’s productive. November was great… early December was bad… last week was great again. The numbers violently fluctuate based on sport outcomes that are largely random. They have little to do with the health of DraftKings’s business; the more unfavorable outcomes get, the more aggressive normalization will be. And if this remains the sole weak point in the data, I will continue to use these headlines to add more shares into more stock declines. As I’ve said many times now, bad luck is not structural and mean reversion is inevitable.

Still, that thinking is in effect only if this remains the “sole weak point,” and there’s a large caveat to address. DraftKings lost handle and hold rate market share amid the rough December for the company. Specifically, hold market share fell from 36.8% to 32.0% while handle market share fell from 38.3% to 32.4%. Unlike hold rate volatility, this could actually turn into a real concern for the business. If this becomes a recurring trend I will grow more cautious and re-evaluate the holding. That has not happened yet, but could if the first quarter of 2025 shows more of the same.

Just like a month of hold rate data is extremely unpredictable with several confounding variables, hold and handle market shares are as well. This could be a byproduct of the successful Fanatics football betting launch. That debut coincided with hefty promotions and marketing from the competitor to steal share, which would be an easy way to explain this temporary weakness. For context, Fanatics reeled in $192 million in bets in December vs. $31 million Y/Y, which was the source of the declines for DKNG. In the long run, DKNG has the brand, product, balance sheet and scale to outlast new entrants that frequently gain fleeting popularity before leveling off or fading away. That is already beginning to play out for Fanatics, as month-over-month growth has greatly slowed after rapid expansion throughout the year. Everyone besides FanDuel and DraftKings will eventually need to prove they can turn handle into sustainable revenue and profit like the two leaders already have done. That requires pulling back on the large marketing costs, which is when these smaller players tend to fizzle.

Furthermore, DraftKings lost a few notable betting “whales” in New York earlier in 2024; this backward looking Y/Y comp reflects that already registered headwind still working its way through the data. That’s why the degree of market share decline greatly diminishes when comparing November to December (2 months where football dominates volume) instead of Y/Y numbers.

I expect this ugly month to be a blip on the radar, but my mind is wide open to that not being the case, and I will continue to closely track this data going forward. Underwhelming December market share in a single state is not enough to lead me to turn sour on this name or trim any piece of the position. Still, it is potentially the beginning of a negative trend that needs to be closely watched (which I’ll continue to do).

In other DraftKings news, the company is testing a $20 monthly subscription. It will include odds boosts on parlays to win over customers. Parlays naturally come with a higher hold rate than single bets, so the structure of these perks makes offering them an easy decision. Additionally, the development could shift DKNG’s revenue mix from gambling-based to software subscription-based, which could potentially mean a lower tax rate on that specific revenue. I’m candidly not sure how New York’s regulators (where this is testing) would treat this type of business, as DraftKings is the very first online sportsbook to try it. We’ll see how the subscription does.

JMP Securities downgraded Uber to neutral due to autonomous vehicle (AV) risks. I think this is fair and (as I’ve written about many times) is why I took a lot of profit in Uber last year and made it a much smaller position. I remain cautiously optimistic that it will find a large niche within AVs, but do think there’s materially more risk to that than assuming it would continue to dominate the current market as it is. I have no interest in selling any more shares today.

Tesla deliveries for the quarter missed expectations by about 3% and missed the whisper number by 1%. We’ll see what kind of margin those sales came with when it reports earnings later this month. 2024 now represents Tesla’s first Y/Y decline in its history, although Y/Y and Q/Q growth was positive for Q4.