First Republic’s Deposits Plunged By 41%

JOIN OUR LIVE SESSIONS! Our LIVE session starts when the big institutions and elite traders do before the opening bell. We'll look at real-time dark pool data as the market movers position themselves for the trading day in secret off-market exchanges. [JOIN OUR LIVE TRADING SESSION @ 6am PT / 9am ET]( [Shadow] Hello investor, The markets show a lack of direction, as earnings reports and economic data came pouring in. First, US manufacturing data was weaker than economists forecast. The GDP is coming up, and economists expect slower growth while the core PCE deflator – one of the Fed’s preferred inflation gauges – is expected to show cooling down. However, none of the current and forecasted economic data would point to a clear path forward for the economy. Hence the flat market in the last few days. - “Economic data continues to deny investors an obvious growth or policy signal,” Dennis Debusschere, a strategist at 22V Research, wrote in a research note. “Demand isn’t falling fast enough to signal an imminent recession, but there are no indications of a re-acceleration.” Swaps markets now price in rates sitting below 4.5% by year-end after hitting its peak in June. Dennis Debusschere, a strategist at 22V Research (Photo: Bloomberg) First Republic Bank reported its earnings: The bank used to be an envy of other banks with its ultra-wealthy clientele. It loaned mortgages to Mark Zuckerberg, for example. Wealthy clients flocked to the bank for its “white-glove” services that big banks cannot offer. Their mortgages were the problem that possibly put them out of the business. While Silicon Valley Bank bought Treasuries, First Republic Bank lent out mortgages when rates were rock-bottom and held them in their balance sheet. Now, people are demanding higher rates and led to a major deposit outflow from the bank. The bank said its deposits plummeted by 41% to $104.5 billion – far below analysts’ expectations of about $145 billion. All in all, there were about $100 billion in deposit outflows from First Republic Bank after accounting for megabanks (including JPMorgan Chase) injecting $30 billion into the bank. (Photo: Anne Czichos) As a result, First Republic’s profit fell 33% in the first quarter. Remember that the deposit run happened in late March, so the first quarter results didn’t fully reflect the pain that the bank felt from the crisis. And the pain could get bigger. The bank was forced to take on expensive loans from the Federal Reserve and Federal Home Loan Bank, which is likely to drag down future earnings. These loans from the government cost between 3% to 4.9% on average. Problem? The bank’s loan book yielded just 3.73% in the first quarter. In other words, First Republic pays more on its liabilities than it is earning on its loans. The bank said it will start selling the mortgages it makes to shrink its balance sheet. And it will place more focus on customers whose balances fall under the FDIC insurance limit. CEO Michael Roffler said uninsured deposits will now be a “much smaller percentage” of total deposits than in the past. 1 Growth Stock To Buy On A 88% Dip Today’s Stock Pick: Fiverr International Ltd. ([FVRR]( One of the best indicators of a monster stock is whether the company is the “category leader.” First-movers often have the advantage that is difficult to penetrate. For example, WeWork is the category leader in coworking spaces. Airbnb for home rentals. Uber for ridesharing. And so on. Fiverr is the category leader in a new (and huge) market of freelancing. The estimated TAM is a whopping $247 billion. What makes Fiverr unique is its e-commerce approach to the services industry. (Source: Fiverr) You could order products from Amazon with a listed price. Simple and sweet. But what if you want to order a brand logo? In the past, you will need to post a job, interview candidates, and go through all of that headaches. With Fiverr, you can simply purchase a service with a listed price. Imagine if you need to plan a travel. Rather than spending time on researching for your travel itinerary, you can simply purchase a service from a travel agent on Fiverr with wide-ranging price points: (Source: Fiverr.com) Cool, right? Like when e-commerce was in its infancy back in the late 1990s, the market of freelancing is very outdated. In the graph below, you will see how most of the freelancing happens offline – rather than online. You and I know that it’s inevitable for freelancing to go online due to the explosion of hybrid work models. Companies are more comfortable working with people online, and it can only boost the demand for online freelancing. (Source: Fiverr) Network effect: One of the most powerful competitive moats is the network effect. Its value increases as more people join the platform. And it would create a flywheel. If Fiverr sellers see more opportunities on the platform, more freelancers (especially higher quality ones) will join the platform. If the buyers see the immense value of sellers, more buyers will also join the platform. This leads to more demand for services. It would eventually attract more sellers. And the flywheel continues. (Source: Fiverr) Phenomenal revenue growth: Sure enough, Fiverr is growing rapidly. Its revenue grew at an incredible pace of 47% CAGR from 2019 to 2022. During the recent earnings call, Fiverr executives acknowledged the new demand from investors to focus on profitability. (Source: Fiverr) Fiverr’s stock fell by 88% since its recent all-time high! Fiverr CEO pointed out that freelance demand usually gets hit first before full-time hiring. He believes that it often leads broader GDP trends, which means the freelancing market can be a “leading indicator” of the economy. However, freelance demand is also expected to be the first to recover. With the stock being down by 88%, it could recover rapidly as soon as Wall Street turns optimistic again. Bottom line: Fiverr is a rare category leader that is still young. Its market cap is just $1.48 billion, but its revenue is growing at a 47% CAGR in the last four years. The growth would slow down a little bit next year due to an economic slowdown. At the same time, this may be already reflected in its stock price as it’s down by 88% from its all-time high. Buy Fiverr if you are looking to buy low on a huge share price dip because of its immense future in the freelancing market. 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