🍋 Could This Troubled Stock Squeeze Like Gamestop?

What’s on the Menu 🍴

With the stock market at all-time highs, people are hunting for gains!

And one of the best places to find them is in “short squeezes”.

So today we’re looking at a stock that is showing big potential to take out shorts.

Also, we’re looking at Coinbase’s recent earnings performance and why we’re bearish on the movie industry.

Let’s roll:

  • Could This Troubled Stock Squeeze Like Gamestop? 🍋 

  • Hollywood's AI Disruption Begins Now 🎥

  • Coinbase Flies 17%+ As Crypto Is Embraced 💸

  • Will We See a Bitcoin “God Candle?” 📺

Today’s newsletter is a 5 minute read.

Could This Troubled Stock
Squeeze Like Gamestop? 🍋 

It’s been a wild week in markets, but one strange situation really caught our attention on Thursday…

Children’s Place (ticker: PLCE), a retailer of children’s clothing & toys, saw its publicly traded stock skyrocket +81% on Thursday.

The stock is currently up about +200% since the end of last week:

In the past week, PLCE stock has traded as low as $8.30 and as high as $38.03!

Why the massive volatility?

PLCE is a once thriving retailer that has seen revenue and profitability decline in recent quarters.

But an activist investor based in Saudi Arabia has rapidly acquired a majority stake with the goal of taking over the Board.

Here’s a brief timeline of recent events:

  • Friday Feb 9 (pre-market): PLCE issues a press release indicating Q4 sales were below expectations and it will have an unexpected quarterly loss

  • Friday Feb 9 (market hours): PLCE stock gaps down 50%+ in the morning & closes the day down 38%

  • Tuesday Feb 13 (after market close): Mithaq Capital, an investment firm based in Saudi Arabia, discloses that it has acquired ~10% of PLCE shares

  • Wednesday Feb 14 (after market close): Mithaq Capital discloses that it now owns 46% of PLCE, with options to buy more

  • Thursday Feb 15 (pre-market): PLCE issues a press release indicating that Mithaq Capital now owns 54% of the company and plans to nominate 11 new Board Members

  • Thursday Feb 15 (market hours): PLCE stock gaps up as high as $38 per share and closes near $26, up 81% on the day

PLCE, which has just $14 million of cash versus $400+ million of debt on its balance sheet, was in the midst of negotiating with its lenders to restructure its financial obligations.

Now Mithaq Capital will also be involved in those discussions and could provide rescue financing.

So PLCE has gone from deeply troubled & staring down restructuring to being controlled by an outside firm that could help it survive.

Even after Thursday’s rise, PLCE’s market cap sits at around $300 million. The tradable float is only 5.75 million shares (worth roughly $150 million at Thursday close price).

Meanwhile there were as many as 2 million shares shorted at the beginning of the week.

That has some investors wondering if PLCE stock could squeeze much higher.

Some have even speculated that it could pull a massive “GME style” short squeeze that sends the stock hundreds of percent higher.

Here are some similarities between PLCE today and pre-squeeze GME:

✅ Small market cap
✅ Large % of tradable float is shorted
✅ Depressed price-to-sales valuation multiple (0.2X)
✅ Activist involvement
✅ Declining revenues & earnings, but previous history of profitability

Yet, we also can’t help but notice some big differences between the two:

❌ PLCE has more net debt than GME did back then
❌ PLCE’s brands (Children’s Place and Gymboree) are not as widely known
❌ PLCE’s new majority owner could attempt a takeunder or get favorable terms
❌ PLCE stock is not being widely talked about on social media (at least not yet)

One notable advantage for PLCE: roughly 60% of the company’s revenues come from their online sites. That leaves it somewhat less susceptible to mall foot traffic loss.

The situation with PLCE is definitely intriguing, with the potential to develop into something explosive.

We’ve personally never seen an activist move that quickly to acquire a majority stake!

The outcome could come down to what the relatively unknown Mithaq Capital does with their stake, the Board fight, and the debt refinancings.

Let’s keep an eye on this situation! 👀

Hollywood's AI Disruption Begins Now 🎥

The glitz and glamor of Hollywood have been underpinned by eye-watering financial figures:

  • Blockbuster movies now often come with budgets exceeding $200 million

  • A-list actors can command upwards of $20 million per film

  • Global box office revenues can soar into the billions, offering lucrative returns on investment for studios and producers.

Yet, beneath this veneer of prosperity, a seismic shift is on the horizon, one that promises to redefine the very fabric of filmmaking: Artificial Intelligence.

Imagine a world where the creation of gripping narratives, the portrayal of characters, and even the direction of scenes can be significantly augmented or even led by AI…

For a fraction of the cost!

And yesterday the world of AI just took another leap closer to disrupting the movie industry.

OpenAI announced Sora, a text-to-video model “that can create realistic and imaginative scenes from text instructions.”

Text-to-video applications like Sora can transform written narratives into visual spectacles, promising to lower the entry barriers to the film industry.

No longer will the need for hefty budgets, costly sets, or star-studded casts constrain creativity.

Instead, the power to captivate audiences will return to the core of storytelling, with AI serving as both muse and medium.

Sora is able to generate complex scenes with multiple characters, specific types of motion, and accurate details of the subject and background. The model understands not only what the user has asked for in the prompt, but also how those things exist in the physical world.

As we stand on the cusp of this revolution, it is worth pondering the implications for the traditional pillars of the movie industry.

Here are some questions to consider:

  • How will studios adapt to a landscape where AI can generate blockbuster-quality visuals at a fraction of the cost?

  • What role will human actors play in an era dominated by digital counterparts? Can AI superstars overtake the likes of Tom Cruise, The Rock, and other A-list celebrities?

  • How will audiences respond to stories born not solely from human imagination but from the collaborative dance between man and machine?

  • Will next generation VR headsets like the Apple Vision Pro put the final nail in the coffin of companies like AMC?

The answers to these questions remain unwritten, but one thing is clear: the movie industry is on the brink of an AI-driven disruption that promises to redefine the economics of filmmaking and the very nature of cinematic storytelling.

As we peer into this brave new world, the only certainty is that the magic of movies will continue to evolve, with AI serving as both the latest disruptor and the newest protagonist in the enduring saga of Hollywood.

Coinbase Flies 17%+ As Crypto Is Embraced 💸

What a difference one quarter has made for Coinbase!

We’ve received their 2023 Q4 and full year earnings report, and it shows the benefits from crypto volatility are likely making executives grin.

Let’s dive into some of the details and highlights of the report:

  • Transaction revenue was up 84% Q/Q thanks to more traders & investors taking action.

  • Subscription & services were up 12% Q/Q.

  • Total revenue however looking at the full year 2023 vs. 2022 is down -2.6% Y/Y. With a slower, less volatile crypto market in 2023 vs. prior years (measured by Bitcoin below), it’s easy to see why COIN may have had negative total revenue growth. However, considering the market environment, COIN actually did well sustaining revenue and fighting for profitability.

Another interesting highlight is institutional adoption of crypto.

It’s happening, and Coinbase is becoming the trusted custodian with institutional revenue up 161% Q/Q!

Developing TRUST with investors is a bright spot for COIN going forward.

Many people have lost trust in crypto exchanges after the FTX collapse… Coinbase is trying to capitalize on this.

From the 2023 Q4 Coinbase Shareholder Letter

Coinbase has been able to cut staff and expenses and their bottom line looks healthier vs. the prior year, even with a bit less top line revenue!

That is a good sign.

While Coinbase stock isn’t the cheapest in terms of valuation, it’s become quite a proxy for Bitcoin. It’s likely that the price will move similarly with Bitcoin or other popular cryptocurrencies for the near future.

But, overall, this was a great report and generally a good year of cost cuts, trust building and actual profitability for the crypto exchange.

Video Of The Day:
Will We See a Bitcoin “God Candle?” 📺

We’ve seen record breaking inflows for bitcoin ETFs over the past month…

And this has people asking, “Will we see a ‘God Candle’ that will send Bitcoin’s price to six figures”?

So in today’s episode, we talk through the possible outcomes for bitcoins’ price.

Also, you’ll learn:

  • Why did the markets freak out about an inflation bump?

  • How are AI stocks leading the charge (and will they flop)?

  • What impact with bitcoin ETFs have on its price?

  • And answer a bunch of your questions!

Food For Thought 🧠

"Whether you think you can, or you think you can't – you're right."
- Henry Ford

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DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.