Good morning! Today’s word count is 1,422 words, or a 9-minute read. Let’s get to it:
“The Dow and S&P 500 declined as the number of Americans applying for unemployment benefits rose to 1.1 million last week and lawmakers remained gridlocked over new coronavirus relief,” The Wall Street Journal writes.
- S&P 500: $3,360.48
- Nasdaq: $11,096.40
- Bitcoin: $11,750.88
- U.S. 10-Year: 0.652%
Justin Oh’s Quick Read
Apple ($AAPL) was my favorite stock from 2006 to 2016 because of its growth and domination as a business. But its doubling to $2 trillion since the start of Covid-19 is solely from multiple expansion, not fundamental growth. It’s a prime example of printed money and a wonky market hiding out in quality tech and growth. Is it a bad stock to own at 22x forward EBITDA? No, and I would rather own $AAPL than $HD at 18x or $COST at 20x. But for comparison, Amazon ($AMZN) and Microsoft ($MSFT) have similar valuations with much higher growth prospects.
Airbnb, a ‘Sharing Economy’ Pioneer, Files to Go Public
On Wednesday, Airbnb announced it had confidentially filed to go public, taking a “key step toward one of the largest public market debuts in a generation of ‘sharing economy’ startups.”
Why It Matters
It’s a long-awaited public offering.
- Its IPO would “signal the end of an era for the first wave of highly valued startup “unicorns.”
- Airbnb has perennially been an IPO candidate, but officially announced it was preparing to do so last year.
- With a set of stock options expiring this fall, there’s been mounting pressure from early employees for the company to allow them to realize gains in shares they own.
The Covid-19 pandemic almost derailed the company’s future.
- Airbnb had been privately valued at $31 billion before this year and had come closer than Uber or WeWork to turning a profit until Covid-19 dissolved more than $1 billion in bookings almost overnight.
- The company posted $4.8 billion in revenue last year but predicted it would drop nearly 50 percent in 2020.
- To counteract the pandemic’s financial strain, Airbnb cut costs, raised emergency funding, laid off almost 2,000 employees, and put its plans to go public on hold.
The move to go public encapsulates the resiliency of tech stocks in 2020.
- Driven by Apple and other tech giants, the S&P 500 hit a new high this week.
- Startups are thriving off of excitement for technology, and investor appetite is seemingly insatiable.
There’re still issues to be worked out.
- Airbnb has butted heads with regulators and local communities over taxes, enforcement, turning neighborhoods into tourist areas and contributing to housing shortages.
- The company also still has a way to go in cracking down on unauthorized parties at rented properties.
- While demand is returning, some forms of travel won’t return anytime soon, and Airbnb will have to adapt.
Read More: (NEW YORK TIMES)
Twitter Data Case Sparks Dispute, Delay Among EU Privacy Regulators
European Union privacy regulars are struggling to decide how much, if anything, to fine Twitter for its handling of a data breach disclosed last year.
Why It Matters
The dispute is the first significant test of the EU’s privacy law, known as GDPR, which took effect in 2018.
- How this decision is played will affect nearly two dozen other investigations into Facebook, Google and other U.S. tech companies.
- Those investigations are headed by Ireland’s data commission because the companies have regional bases in Ireland, but regulators in all 26 other EU countries can object in cases that involve them.
GDPR carries a notable penalty.
- Regulators can fine companies up to 2 percent of their worldwide annual revenue for failing to disclose a data breach within 72 hours.
- Twitter’s fine could be as much as $69 million based on its 2019 revenue.
The Twitter case outcome is a litmus test on how the EU’s power-sharing system among regulators works.
- In cases involving multiple countries, the lead regulator (Ireland in this one) drives the process.
- Counterpart nations have four weeks to submit objections, and any disagreements go to a vote, which can drag out over a few months.
Read More: (WALL STREET JOURNAL)
A Quick Look
Apple Surges to $2 Trillion Market Value
- Apple became the first U.S. public company to eclipse $2 trillion in market value Wednesday, a testament to its “commanding role in the world economy.” It crossed $1 trillion in August 2018.
- The stock has more than doubled since its March 23 low, bolstered by continued demand for its devices and “better-than-feared” results from its core iPhone business.
- Apple’s sales increased to $260 billion in the fiscal year ending in September from $216 billion three years before. Sales even grew during the pandemic, rising 11 percent from a year early to nearly $60 billion. Earnings hit $11.25 billion.
- Apple could be joined by its tech giant peers soon. Amazon and Microsoft have market values of around $1.6 trillion, Alphabet is at roughly $1 trillion and Facebook is up to approximately $750 billion.
- “The five biggest U.S. companies made up about 25 percent of the S&P 500 at the end of July, up from 12 percent four years earlier. Their rise helps illustrate how the market continues to climb near records even as many sectors and the broader economy flounder.”
Read More: (WALL STREET JOURNAL)
U.S. Jobless Claims Unexpectedly Increase to More Than 1 Million
- U.S. Department of Labor data revealed initial jobless claims in regular state programs rose by 135,000 to more than 1.1 million in the week ending Aug. 15.
- Continuing claims, or the total number of Americans claiming ongoing unemployment assistance, decreased to 14.8 million in the week ending Aug. 8, the lowest since early April.
- “The absence of an additional stimulus package threatens the fragile economic recovery as businesses run out of aid, while the uneven reopening of schools is making it difficult for many parents to work. On an unadjusted basis, initial claims rose to 891,510 from 838,734 as New Jersey, New York and Texas reported sizable increases from the previous week.”
Read More: (BLOOMBERG)
Alibaba Online Orders Amid Coronavirus Fuel Sales Recovery
- Alibaba saw its fiscal first-quarter profit double from a year ago as the Covid-19 outbreak led to more shoppers buying daily necessities and other products online.
- The company reported a net income of 47.6 billion yuan ($6.7 billion) for the quarter ending June, and revenue increased 34 percent to 153.8 billion yuan.
- Thursday’s results mark a substantial recovery following an 88 percent drop in earnings as Alibaba’s public investments sunk in value.
- “China’s economy also rebounded from a contraction in the first three months of 2020, growing more than 3 percent in the second quarter, making it the first major economy to return to growth since the start of the pandemic.”
Read More: (WALL STREET JOURNAL)
Worth Your Time
What Do You Mean: Microsoft and Oracle aren’t in the social media business. Why do these companies want to buy TikTok’s U.S. operations, and what would they do with the app? With both firms touting cloud computing business, it’s an opportunity to bolster its usage and improve market share in a space dominated by Amazon Web Services. (TECH CRUNCH)
Open Season: “The U.S. Department of Defense has given five small drone manufacturers permission to sell to the U.S. military and federal agencies, in the wake of last year’s ban on these agencies buying Chinese-made drones… China’s DJI Technology Co. is the world’s biggest drone maker, and some of its drones were purchased in years past by federal agencies. In 2017, the U.S. Department of Homeland Security warned that it believes DJI was ‘selectively targeting government and privately-owned entities…to expand its ability to collect and exploit sensitive U.S. data.’ DJI officials have disputed that claim.” (WALL STREET JOURNAL)
TikTok is launching a multi-platform ad campaign as the company attempts to lure more users in the face of a potential sale or ban in the U.S.
Speaking of TikTok, the app has said it agreed to settle “19 class-action lawsuits which allege the popular app violated data privacy rights of its users, but California is holding out.”
Gradient Ventures, Alphabet’s venture capital investment arm, laid off 8 percent of its staff this week in what appears to be a “broader shift in how the firm intends to operate moving forward.”
“Chinese online retailer JD.com is deepening its push into healthcare, raising $830 million from private equity firm Hillhouse.”
New York-based healthcare startup Klara is pitching itself as a superior tool for patient engagement at doctor’s offices and other clinical practices, and just raised $15 million in new funding from Google’s Gradient Ventures.
Japanese startup ispace raised $28 million in Series B funding as it continues to develop its commercial moon lander ahead of planned 2022 and 2023 launches, while also announcing a new data platform business that will provide the lunar data it collects to other organizations.
Former House Speaker Paul Ryan is starting a SPAC and is trying to raise around $300 million in its IPO.
A Couple Cents Content
Justin Oh breaks down how people develop immunity through vaccines. (TIKTOK)
Take a trip back in time and learn how an earthquake crashed the economy and created the Fed, (TIKTOK)
Here’s a brief look at what Sportradar’s deal with the NHL means, especially if a SPAC takes it public. (TIKTOK)