STOCK TICKER

On Friday May 10, 2013, Tesla Motors (TSLA) stock price closed on the Nasdaq stock market exchange at $76.76, up $7.36, 10.61% for the day. This also marked a new 52-week closing high on the stock market. Friday saw an intra-day high stock market price of $81.00. On March 28, 2013 TSLA closed the stock market trading day at $37.89. This reflects an astounding run-up of the price on the stock market of 102% in six weeks. This number is significantly better than the stock market as a whole. For the same time period, the Nasdaq stock market composite index showed an increase of 5.17%. This is reminiscent of Google (GOOG) when they had a 20.00% one day stock market price increase upon the release of their Q1 2008 earnings. For the same six week time period of March 28, 2013 to May 10, 2013, the Google stock market price was up 10.8%.

Who is Tesla Motors?

Besides currently being the darling of the stock market, Tesla Motors is a Silicon Valley electric car and electric powertrain designer and manufacturer. Tesla Motors is named after Serbian-American electrical engineer, physicist, and inventor Nikola Tesla. The company’s first vehicle and the first fully-electric sports car, the Tesla Roadster, uses an AC motor derived directly from a Tesla design. The Tesla Roadster has a base price of US$109,000. Tesla began selling the Roadster in 2008 and in 2012 introduced the Model S to the automobile-buying market. Tesla Motor stock was first traded on the Nasdaq stock market on June 29, 2010. Some would say that Tesla Motors is Elon Musk, the company’s forty-one-year-old co-founder, Chairman, CEO, and Product Architect. Musk is also a co-founder of PayPal.

Funding and Start Up Of Tesla Motors

Two separate teams, one with Musk as a member, in 2003 were attempting to commercialize a prototype electric sports car created by AC Propulsion. The president of AC Propulsion suggested that the two teams join forces and they did, naming Musk as the chairman and head of design. In addition to his functional roles, Musk was the primary investor in Tesla and funded the majority of Series A capital with personal funds. From the start, Musk has always insisted on the company producing an affordable electric vehicle that would appeal to both the mass market and the stock market. Following additional rounds of equity financing, in June 2009 Tesla received debt financing of $465 million in interest-bearing loans from the US Department of Energy. Tesla used the funds to support engineering and the production of the Model S and to develop the electric powertrain that it now sells to other automakers. The cheap debt financing was viewed favorably by the stock market.

Why the Friday run-up?

There is a theory that the stock market price saw such a rise on Friday because speculators who had shorted the stock in anticipation of a price decline had to buy on the open stock market. Investors have a short interest in 41 percent of the Tesla public shares. Also, on Wednesday of last week, the company issued its financial results for the first quarter ending March 31 and announced a quarterly profit for the first time in the company’s 10-year history, which was good news for the stock market. Other news in the first quarter earnings press release that impressed the stock market were a cash balance increase, record sales for the quarter, a doubling of the gross margin over the prior quarter, and a forecasted increase in both domestic and global demand. Furthermore, the stock market reacted to Consumer Reports magazine reporting that Tesla’s Model S sedan, with a base price of $69,900, scored 99 out of 100 points in its evaluation.

Tesla’s Financial Numbers

Tesla Motor’s Q1 2013 revenue was reported to the stock market as $562 million, up 83% from Q4 2012. Higher Model S production rates, improved Q1 total gross margin from 8% to 17%. With their products selling like hot cakes, they impressed the stock market even more by selling zero emission vehicle credits to less green automakers. This added an additional 12% to Tesla Q1 revenues, a move pleasing to the stock market. The bad news in the Q1 earnings press release was the increased costs associated with the switch over from (and increased unit production by over 3000%) the Roadster to the Model S. Selling, general and administrative which were up slightly over Q4. The stock market did not have a negative reaction to this news. The company presented the stock market with a bottom line GAAP net income of $11.2 million ($.10 EPS, $0.00 EPS diluted). Cash on the balance sheet at the end of Q1 was $231 million.

The Future

Tesla Motors keeps reporting news that the stock market wants to hear. The company plans to continue supplying electric powertrains and battery packs to Toyota for their RAV4 EV program. They have stated to investors and the stock market that they will hit a gross margin of 25% in Q4 2013. One of Tesla’s strategic corporate goals, that is sure to please the stock market, is to increase the variety and number to electronic vehicles to the mainstream market. They plan to do this by selling through their own company-owned display rooms and online, selling electric powertrain component to other manufacturers, and acting as a stimulant to other automakers as a good example. The stock market is sure to respond favorably as Tesla continues its winning ways.

In the pipeline

On February 9, 2012 Tesla Motors announced to the stock market the new Model X. The vehicle has been delayed until 2014. The company announced the delay in order to focus on profitability and meet 2013 Model S production targets. That is good news for the investors and the stock market. Tesla is also in the process of designing electric minivans, SUV crossovers, and electric fleet vans. On the sportier side, the company is also planning the BlueStar model which will have a starting price of $30,000. As a vehicle targeted to the mass-market, the sales that it generates are sure to be appreciated by the stock market. Also in Tesla’s crystal ball is a self-driving car.

Rather than dig into yet another protracted battle over the state of the United States economy and risk damaging an improving stock market, Congress has voted to suspend the debt ceiling for a further four months. By doing so, it delays the debate until May, allowing greater dialogue on both sides without the pressure of an impending deadline. The issue of financial reform, however, is still far from settled, and investors are watching anxiously to determine its impact on businesses and the stock market.

What is the Debt Ceiling?
The debt ceiling is the set amount of money the United States can owe to other nations. Before the House approved the suspension, it was capped at $16.4 trillion. The expenditures may seem to be far removed from the enterprises of the stock market but, as the 2008 collapse proved, the stock market is inextricably tied into the economic health of the nation. Similarly, the stock market took a sharp hit following the credit downgrade of 2011, which stemmed from the same political deadlock threatened here. Understanding how the debate will play out in the future can provide valuable insights for stock market investors looking to avoid such losses in the future.

What Happens to the Stock Market if the Debt Ceiling is Not Raised?
Failing to raise the debt ceiling would have immediate effects on both the stock market and the entire global economy. Besides its obligations to citizens and the stock market, the United States is tied into financial agreements with many different countries and foreign investors. If the cash flow halts, the federal government will have no way to pay its debts and go into default. The nation’s credit will be downgraded and consumer confidence will decline, likely causing a massive reaction in the stock market.

Once the stock market begins to slide, the economy will enter another depression. Worse, increasing interest rates and a weakened dollar would discourage new investments in the stock market, making any recovery slow and painful. When the stock market and banks entered a recession in 2008 and 2009, they did not have the ramifications of a default behind them.

What do Democrats and Republicans Want?
As usual, the two main American political parties are at odds on how to move the country forward without sending the stock market tumbling. Republicans believe that the current rate of spending cannot be maintained and are using the debt ceiling to negotiate greater spending cuts. Democrats argue that a sudden drop in spending would echo into private industry, including the stock market, as subsidies disappear and interest rates rise.

Democrats also point out that refusing to raise the ceiling will devastate the stock market Republicans claim to champion. Since both parties ostensibly want a healthy stock market and economy, Republicans have found themselves walking a fine line between standing for their principles and alienating stock market investors and workers. For the sake of the economy, most politicians understand that raising the debt ceiling is the only way to protect the stock market.

What do Stock Market Investors Want?
Considering the massive consequences of maintaining the debt ceiling, most stock market investors would like to see it raised. Where they differ is in the conditions attached to the deal. Some believe that the stock market can only see long-term viability if the government lowers its debt quickly and aggressively. Others argue that a more gradual approach won’t shake consumer confidence, sparing the stock market turbulence. Almost every stock market investor can agree, though, that the longer the debate goes on, the more likely the stock market is to stagnate or go into reverse.

Can Long Debates Hurt the Stock Market?
In 2011, when the debate over this issue became particularly heated, the stock market suffered for weeks as America’s future remained uncertain. Although default was unlikely, the partisan bickering at the expense of the stock market and economy eroded investors’ perceptions of Washington’s ability to get things done. The federal government is hoping to avoid this by showing it can make compromises and alleviate stock market worries, but the ceiling looms again in a short four months. In the meantime, stock market investors will be watching the national discussion closely to decide a course of action.

Investing in the Stock Market During the Debate
While no side wants to see a default and subsequent stock market crash, there is always the possibility that the United States will miss its deadline, as it did during the fiscal cliff negotiations of late 2012. If this looks likely, stock market investors may pull out until a solution is reached. There is also the chance that the deals put forward by politicians will negatively impact the stock market, causing more damage over the long term. Short of a total panic, however, it is likely that the stock market will not take a staggering blow this May as the decision approaches.

The stock market is the heartbeat of the American economy. It pumps life blood to businesses, but it also displays the pulse of stock market investors and the consumers they monitor so closely. Keeping businesses and the stock market happy should be a top priority for law-makers, but sometimes those interests get lost in the political shuffle. It is up to stock market investors to determine whether the risk of default is worth weakening the economic outlook. Ultimately, the fate of the stock market lies in the hands of the men and women of Congress, whose ability to compromise will be tested with their country’s future on the line.

Seasoned investors and stock market analysts often discuss the apparent futility of trying to beat the market, comparing it to the Gambler’s or Monte Carlo fallacy axiom of probability in game theory, which explains the unlikely probability of past events shaping the future of the market. This is one of the reasons for the rise in popularity of investment securities such as exchange-traded funds (ETFs) and other instruments that are tied to the performance of a benchmark index like the S&P 500, Standard & Poor’s list of the largest publicly-traded American companies.

Investors who put their money on ETFs are essentially speculating on their continuous positive long-term performance; this has been a mostly sound strategy in the wake of the collapse of the financial markets in 2008, which brought on the global financial crisis. The S&P 500 has been on a mostly bullish recovery mode since then, but this does not mean that the returns produced by the investment derivatives of the index have been the top performers on Wall Street.

The Medallion Fund

Renaissance Technologies is a New York-based investment management companies that specializes in running hedge funds based on complex mathematical modeling and quantitative finance. As of 2013, Renaissance Technologies operates four proprietary funds and provides management services to external investors under contract. The Medallion Fund is Renaissance Technologies’ most talked-about fund due to its amazing performance, particularly when compared to the S&P 500.

When comparing the Medallion Fund return to that of the S&P 500 through the years, it is important to note the alpha of the investment, which is the active return. Since 1988, the Medallion Fund has returned a negative alpha once in 1989. In that same year, the S&P 500 enjoyed a 31.69 percent annual return, equivalent to about 10.31 percent average gains for investors. The Medallion Fund history since then has been to constantly return considerable gains, essentially beating the S&P 500 each year.

In the 1990s, the Medallion Fund’s smallest gain was 21.2 percent in 1997, compared to a 33.36 percent return by the S&P 500 that same year, which netted investors an average of 11 percent. The biggest contrast, however, came when the world welcomed the New Millennium in the year 2000. The S&P 500 disappointed investors by finishing in the red at -9.11 percent, but Medallion Fund’s investors were very happy with an astonishing return of 98.5 percent.

The dark days of Wall Street in 2008 depleted the S&P 500 by -37 percent while the Medallion Fund returned 80 percent. The S&P 500 index has performed considerable better since then thanks to investor optimism and concerted efforts by sovereign central banks and finance ministers around the world to prop up their ailing economies. The index saw gains of 26.46 percent in 2009 and 15.06 percent in 2010, which had resulted in investors increasingly moving towards ETFs and other securities that track the market instead of trying to beat it. In the meantime, the Medallion Fund has continued to beat the S&P 500; by 2009 it posted a compound return of 62.8 percent.

Proprietary Trading Versus Beating the Market

To the naked eye, Medallion Fund seems to consistently beat the market, but its trading methodology does not work that way. The Gambler’s fallacy cannot be debunked on the basis of the randomness, which essentially means that nothing outside of regulatory action could stop the price of a stock from constantly moving in one direction or another. Investors these days may be seeking safety in numbers when they load their portfolios with ETFs and similar securities, but the the Medallion Fund relies on algorithmic trading and lightning-fast transactions that do not necessarily take into account past random trading activity.

The trading desk at Renaissance Technologies handles a number of securities, from future contracts to US Treasury debt and from currency swaps to international sovereign bonds. Financial data and mathematical modeling seems to be at the heart of the Medallion Fund investment strategy. Not much is known about the fund’s algorithm, except that in some cases it aims to take advantage of large market transactions that have some degree of inefficiency. In this sense, the Medallion Fund is still speculative, but it draws strength from the executions of computer models programmed by finance experts and scientists with backgrounds in physics, statistics and mathematics.

Renaissance Technologies founder Jim Simons is a man who finds comfort in the complexity of numbers and quantitative investing. He does not follow the value investing style of Warren Buffett; the Medallion Fund outsized returns come at a high cost for being infinitesimally short on the buy and hold scale, and yet the returns are sufficient to cover the considerable overhead. Medallion Fund is not for everyone; in fact, the fund is essentially closed to all but accredited investors, who happen to be the whip-smart employees at Renaissance Technologies.

Groupon is one of the most discussed stocks in the stock market in the last couple of years. Gauging if Groupon warrants such attention from the stock market compels examining the stock’s performance and outlook. Unimpressive earnings reports, questionable accounting practices, management departures and ceaseless entrants coupled with a tenuous business model have marred Groupon’s initial sheen. What constitutes marring may be objective; however, one thing is clear: The stock market and public continue to express qualms about Groupon’s sustainability.

Initial Evaluation and IPO

Debuting at $20 per share on November 4, 2011, Groupon’s initial evaluation was $12.7 billion that distinguished it as the largest Internet tech IPO since Google. The daily deal site went on to trade as high as $26 per share, increasing its valuation to nearly $15 billion. Stock market investors and spectators were engrossed in the event.

Life after the Unveiling

Less than a month after its debut, Groupon’s stock began to flag. The stock fell to $16 per share, and the fanfare and hysteria started to dissolve. Investors who paid $20 or more per share were crestfallen, and for months, the downward pressure persisted. Groupon did little to allay investor concerns when it reported a fourth-quarter loss of $9.8 million in its first earnings as a public firm.

On November 9, 2012, Groupon’s stock swooned to a record low of $2.76 after the company released another lukewarm earnings. The online coupon company reported a $3 million loss on $568 million revenue, which missed consensus revenue estimates of $591 million. The miss was patent because it came in below Groupon’s own forecast, which spanned from $580 to $620 million. Furthermore, the data bared mounting reliance on less profitable sales of discounted merchandise combined with a decline in its core daily deal business and weak holiday forecast. The company also lost money in Europe, leaving a marginal mark internationally. At a time when the stock market faces downward pressure owing to a global economic decline, Groupon’s descent perpetuates negative sentiment.

Stock market analysts and investors can be unforgiving, impatient and unsympathetic. Swift investor reaction that drove Groupon’s stock price to less than $3, an approximate 88 percent decrease in share value from its IPO price, suggests that not everyone is willing to linger or offer Groupon a chance for redemption. Analyst downgrades also signify displeasure and intolerance. Ultimately, many stock market participants are already searching for the next promising firm.

Shrinking profit margin, domestically and overseas, is among a bevy of factors making investors uneasy about Groupon. Diminishing profits portend nonviable future earnings and shaky revenue growth. Despite a host of strategic acquisitions by Groupon, these acquisitions have been largely inconsequential to profitability.

Management departures have also led many investors to rethink investment decisions. Groupon has a turnover issue: Groupon has gone through three COOs in its short time as a public company, and many top executives and mid- and lower-level salespeople have left. Forbes contributor, Adam Hartung, even called for the departure of Groupon CEO, Andrew Mason, citing inexperience, poor leadership and cavalier work ethic.

Accounting Concerns

Accounting issues are also disconcerting to shareholders and prospective investors. Notably, the company has had accounting issues pre-IPO for using an accounting metric measure called adjusted consolidated segment operating income (ACSOI). This scale does not tally certain expenses that include marketing and stock-based compensation, resulting in misleading and overstated revenues. For example, Groupon reported a positive operating income of around $60 million in 2010 using ACSOI; however, when replaced with standard accounting metrics, Groupon reported a net loss of more than $400 million for the year.

Moreover, the company disclosed it had “material weakness in its internal controls” over its financial affairs. The admission rattled shareholder confidence in the firm and the stock market. Groupon’s numerous acquisitions and global expansion over the past two years have complicated accounting even further; many people increasingly doubt Groupon’s accounting controls and competence. Undoubtedly, it would likely surprise few stock market shareholders if the SEC launched another inquiry into Groupon’s finances.

Competition

Because Groupon’s commerce model does not have copyright protection, competition can come in throngs. The design is easy to replicate, as it consists of chiefly sending out daily email offerings on a vast array of products. Groupon does not make products, and if it opted to sell products directly, it is likely that Groupon would obtain lower profit margins contrary to its current core business. This attribute is also another reason many stock market investors find Groupon lacking.

Stock market critics often cite the main competitors, LivingSocial and Amazon (AMZN), as the eventual Groupon eradicators. Facebook and OpenTable are also making strides. To exacerbate matters, search giant Google (GOOG) entered the market with Google Offers. Stock market investors found this news telling considering Google offered to buy Groupon for a reported $6 billion to no avail. A decision that some people speculate Groupon regrets.

Additionally, Groupon faces competition from a rising number of small, local players. In fact, stock market analysts assert that the same retailers Groupon counts on to provide deals are using the exact stratagem and opting not to use Groupon again. The stock market is not blind to Groupon’s inherent vulnerability.

Outlook

Groupon’s clear threat is both present and future rivalry. Any stock market investor would be remiss not to make such an acknowledgement. Emerging and existing competitors are likely to increase their marketing efforts, which will cut into Groupon’s profits. Clients are likely to forgo the intermediary, Groupon, to focus not only on providing deals but also on working toward attaining recurring customers, an end Groupon has failed to accomplish. If local merchants believe they are more beneficial to Groupon than Groupon is to them, they will seek a higher payout share from Groupon. Alternatively, it is not farfetched to surmise that Groupon may go private in a few years.

As of January 7, 2013, the stock was trading at $5.30 with a $3.5 billion market cap at less than 2.2x sales. Clearly, the stock price is recovering from its lows. However, with some exceptions, the stock market tends to gauge companies on performance not potential. Therefore, Groupon still has promises to deliver.

At an epoch when the global stock market is middling at best, investors will look for less risky investments. Unless Groupon can refine its business model to adopt a more sales-driven scheme with a focus on maintaining high customer-conversion rates, stock market investors will continue to look elsewhere. Moreover, Groupon’s profits will continue to wane.

The year 2013 promises to be a solid year for IPOs. Many fast growing companies have made the decision to go public. The key is to know which ones to focus on. Here are seven of the most exciting IPOs to look out for in 2013:

Gilt

The company was started in 2007. It is an online platform specializing in “flash” sales. It mainly deals with luxury products. It has been successful since it started and its growth rate has been very impressive. Revenues for this year are expected to be well over $600 million. This is up more than fifty percent over the preceding twelve months. Even more remarkable is the fact that Gilt is cash flow positive. They have hired a new CEO in preparation for the IPO. She is Michelle Peluso, who was the former CEO of Travelocity.

Airbnb

This is a company that started a fledgling marketplace where property owners can rent out their properties for short periods of time. The business model that they have constructed is simple but effective. Airbnb simply takes ten percent from each transaction.

Airbnb is doing a staggering amount of business. Consider the fact that in 2012 they will surpass Hilton in the number of rooms that they have booked. Their revenues for 2012 are estimated to be $180 million. They are currently in the process of raising financing. It is expected to be roughly $100 million with a $2 billion to $3 billion valuation. There are rumors that Peter Thiel, who became famous as the initial outside investor in Facebook, will be in charge of this deal.

Box

This company has developed a cloud-based platform that is designed to allow users to work together on various projects. They have already become a chief competitor of Microsoft’s SharePoint franchise.

In 2012, Box made the announcement that their enterprise sales increased by 200% over the previous year. However, they did not disclose the exact figures. Intel and Proctor & Gamble are both clients of Box. IPO investors seem to be drawn to cloud operators that show steady growth.

SugarCRM

They create customer relationship management (CRM) software. They have developed a business model that has come to be known as the freemium approach. This allows users to obtain a free workable version of SugarCRM. If they choose, the user can then convert to a version that has additional features. This is known as the premium version.

In the third quarter of 2012, their revenues experienced a 45% gain. They currently boast more than 6,000 paying customers. Coca-Cola and Men’s Warehouse are two of their clients.

Zendesk

This company was founded in 2007. Located in Copenhagen, Denmark, they provide a cloud-based help desk system. Their location has done nothing to hinder their success. They currently have more than 20,000 customers. Disney, Sony Music and Adobe are among some of their bigger clients. The revenues for Zendesk are projected to be $30 million in 2012 and as much as $70 million in 2013.

Go Pro

This company has created a niche by combining photography and filming with the exciting and dangerous world of extreme sports. They sell durable, light and small cameras that are designed to stand up to the brutal conditions of mountain biking, surfing, snowboarding, skiing and many other activities for the adrenaline junkie.

There are no other companies that are publicly traded currently offering cameras that are positioned so uniquely, with a quality that is this superb, at a reasonable price. Sales in 2011 reached $250 million. They are dominating this particular niche with no other major competition in sight.

Space Exploration Technologies (SpaceX)

Elon Musk could potentially have a third company he is involved in go public in three years. In 2010, the electric-car company he co-founded in 2003, went public. It is called Tesla Motors. The stock has doubled in value over the past two years.

SolarCity, another Musk venture, went public in 2012. Shares for the company increased by almost 50% on the initial day of trading.

SpaceX is a private contractor that specializes in the transportation of cargo into space. They have already locked in over $4 billion in contracts through 2017. After a supply run to the International Space Station was successful in May of 1012, they were given another $1.6 billion contract. After SpaceX secured a $900 million US Air Force contract, they got the attention of competitors such as Boeing and Lockheed Martin.

These companies only scratch the surface of the exciting IPOs that will be available in 2013. Many different industries are seeing companies spring up and quickly start dominating the marketplace. In the weeks ahead, it is likely that more potential 2013 IPOs will be announced. It is a great time to be a savvy investor.