AstraZeneca, Covid-19, Apple, Epic Games, Lululemon, Slack and Are We Entering A Bear Market?

AstraZeneca’s Covid-19 vaccine hits a speed bump, Apple countersues Epic Games, Lululemon rides the athleisure wave and disappointing billings overshadow Slack’s record sales.
(By Tada Images)
(By Tada Images)
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Good morning! Today’s word count is 2,061 words, or a 10-minute read. Let’s get to it:

“The Dow industrials, S&P 500 and oil prices ticked higher a day after a tech rout drove the Nasdaq Composite into correction territory,” WSJ writes.

  • S&P 500: $3,393.93
  • Nasdaq: $11,103.95
  • Bitcoin: $10,279.59
  • U.S. 10-Year: 0.695%

Justin Oh’s Quick Read: The Next Bear Market?

The question of the week is, “is this selloff a small correction, or is it the start of another bearish period?” The S&P 500 is reaching valuation levels (around 25x PE) not seen since the Tech Bubble peak, after which there was a long period of poor stock returns. That being said, we are in a MUCH lower interest rate environment today than we were in 2000 (practically 0 percent vs. >6 percent back then), so we could very well see elevated valuations from here. My current bias is that we’re more likely to see corrections downwards or sideways movements than further mania upwards, especially if stimulus checks are reduced. I am seeing high valuations in consumer and tech sub-sectors that tend to have household names, while “unsexy” sectors like Financials and Healthcare are left behind. I am keeping ROIC Target Allocations similar at this point, but I am actively swapping out expensive growth and speculation stocks for the reasonably-priced capital compounders and the couple growth stocks we like, and will actively try to find good value stocks to diversify with.

AstraZeneca Pauses Covid-19 Vaccine Trial After Illness in a U.K. Subject

AstraZeneca paused clinical trials on its Covid-19 vaccine, co-developed with the University of Oxford, after a participant in the U.K. study had an unexplained illness.

Why It Matters

It’s a setback in the race to find a safe Covid-19 vaccine.

  • AstraZeneca-Oxford’s experimental vaccine had long been touted as one of the world’s most advanced candidates.
  • The partnership had started a large-scale study in the U.K. this spring and just began a 30,000-person, U.S.-based study with federal funding.
  • AstraZeneca has struck deals to provide more than 2 billion doses in various countries, including the U.S. and U.K.

Although it could just be a minor bump in the process.

  • AstraZeneca called the pause a “routine action which has to happen whenever there is a potentially unexplained illness in one of the trials, while it is investigated, ensuring we maintain the integrity of the trials.” Oxford released a similar statement.
  • AstraZeneca added it was taking extra steps to expedite the review process to minimize any impact on the trial timeline while reinforcing its commitment to participants’ safety and the highest standard of conduct.
  • According to analysts at Jefferies, temporary pauses are standard clinical trial practice, and this wasn’t surprising.

As a viable vaccine inches closer, safety remains paramount.

  • “Nine pharmaceutical companies issued a joint pledge on Tuesday that they would “stand with science” and not put forward a vaccine until it had been thoroughly vetted for safety and efficacy,” The New York Times writes.
  • Among the nine were AstraZeneca, Moderna and Pfizer, three companies testing their vaccine candidates in U.S.-based, late-stage clinical trials.

Numbers To Consider

  • AstraZeneca’s stock opened at $53.83 Wednesday.
  • It has a market capitalization of $71.51 billion.

Justin Oh’s Two Cents

As a reminder, I don’t believe any personal investor should put money into biotech or pharmaceutical companies unless they’re a diversified behemoth like Pfizer or Johnson & Johnson. We don’t have the medical knowledge nor advanced insight into how clinical trials will go.


Apple Countersues ‘Fortnite’ Maker Epic Games, Seeks Punitive Damages

Weeks after Epic Games sued Apple for removing “Fortnite” from the App Store, Apple is firing back. In a counter-lawsuit, Apple accused the software developer of “duplicity and greed” in a battle that could reshape how the online app marketplace operates.

Why It Matters

It started with Epic pushing Apple’s buttons.

  • Dissatisfied with the 30 percent cut both Apple and Google take on their App Stores, Epic introduced an in-app payment system that would cut out the marketplace operators.
  • The tech giants retaliated by removing “Fortnite” from the platforms and Epic sued, citing anticompetitive behavior.

Epic isn’t the only company to take issue with Apple’s practices.

  • Microsoft and Spotify, among others, have complained publicly about app marketplace practices.
  • In a webcast with employees last month, Facebook CEO Mark Zuckerberg said, “Apple has the ability to block innovation and ‘to charge monopoly rents.’”
  • The company is also facing antitrust probes in the U.S. and Europe.

However, Apple is trying to portray itself as a victim in this.

  • Amid the probes, Apple has rejected the idea it’s trying to hurt its rivals and reinforced that it wants competing apps and services to thrive.
  • In its filing Tuesday, Apple “described all the help it had given Epic in recent years and detailed how it alleged the game company had begun laying groundwork for what Apple called a ‘calculated and pre-packaged campaign’ against it.”
  • Apple has stood by its policies as a necessary aspect of providing a safe and secure environment to download third-party software.

As the legal fight continues, Apple wants retribution.

  • The tech giant asked a California federal judge to award punitive damages and restrict Epic from “continuing what it describes as unfair business practices.”
  • Epic CEO Tim Sweeney reportedly tried to make a “special agreement” in June, exempting his company from existing contractual obligations, including App Store payments, which Apple rejected.
  • The game developer said it’s committed to the legal fight, but the effects have harmed its business over the last few weeks. It filed a motion to get “Fortnite” back in App Store, with a hearing scheduled for Sept. 28.

Numbers To Consider

  • Apple’s App Store generated almost $39 billion in global revenue this year, according to Sensor Tower.
  • Since its launch in 2008, the App Store has roughly one billion customers in 175 countries.
  • “Fortnite” has been downloaded around 130 million times since joining the App Store in 2018, earning Epic more than $600 million.

Justin Oh’s Two Cents

Apple and Google’s app stores are examples of dominant economic “moats.” They own the ecosystems for almost all smartphones and can say which apps can and can’t be downloaded. So if an app developer wants to sell to mobile users, they must pay their app store toll, whatever the price. When a moat becomes so large and dominant that it wields all the power, it becomes anti-competitive and a monopoly (or duopoly). Historically, the government broke up monopolies, hence the lawsuits about antitrust dynamics and anti-competitive behavior. Still, I find it hard to see how the government can effectively break up the software giants. $AAPL remains an amazing company, but too expensive for me at around 22x 2021 EBITDA for a single-digit growth profile.


Number Crunch: Lululemon Rides The Athleisure Wave, Disappointing Billings Overshadow Slack’s Record Sales

“Lululemon’s sales rose slightly in the latest quarter, as a jump in online business largely offset sales lost to temporary store closures,” WSJ writes.

  1. Net revenue increased by 2.2 percent compared to last year. The company pulled in $902.9 million in revenue for the quarter ending Aug. 2.
  2. Lululemon’s online business grew by 157 percent this quarter. It accounted for 61 percent of the company’s overall sales, which was 25 percent last year.
  3. Overall sales took a slight hit due to temporary store closures and reduced operating hours. As of Aug. 2, the company reopened 492 of its 506 stores.
  4. Lululemon said its quarterly profit fell to $86.8 million from $125 million in the same period last year. Its company shares have still gained 51 percent year-to-date.

“Slack enjoyed strong customer growth even as some users cut back on the use of the workplace-collaboration tool, showing how pandemic-driven changes have been both a boon and burden for business-software firms,” WSJ writes.

  1. After billings in the quarter fell short of expectations, Slack’s stock dropped nearly 20 percent in after-hours trading. The stock had been up 30 percent year-to-date before Slack posted its latest results.
  2. Still, Slack posted record sales of $215.9 million, a 49 percent jump from the year-ago period. It’s net loss shrunk to $74.8 million compared to $359.6 million to the same quarter last year.
  3. Slack announced it has 87 customers with commitments on its services of more than $1 million over 12 months, a 78 percent increase from last year. Total paying customers rose by 30 percent to more than 130,000, which the company attributes to the rise in remote working.
  4. The company expects sales for the fiscal year to reach as high as $876 million, nearly 40 percent year-over-year growth. It projects an operating loss between $70 million and $75 million.

Justin Oh’s Two Cents

$LULU is another great example of a stock that’s run-up well past its intrinsic value. Yesterday they printed a great quarter and messaged cautious optimism, yet the stock is down almost 8 percent as I write this. Remember that stock valuations reflect expectations of future earnings. When a stock’s valuation is too high, the market implies such amazing prospects that even great fundamentals are a “let down.” This is why we avoid massively overpriced stocks like $LULU, which is trading at around 33x post-Covid-19 EBITDA (“profits”) for a clothing company.


Worth Your Time

A Welcomed Blizzard: Data analytics startup Snowflake has a bright future. After it’s latest round of funding, the company was valued at $12.5 billion and recently announced plans to enter the public market. The pot may be even sweeter, as an updated IPO filing revealed that Berkshire Hathaway and Salesforce each agreed to purchase $250 million worth of shares at the IPO price. Snowflake has revised its price target between $75 and $85, valuing the company at more than $22 billion. (CNBC)

Rely On Me: Mukesh Ambani is on quite the hot streak. Just months after Jio Platforms raised $20 billion, the Indian billionaire said Wednesday that private equity firm Silver Lake is investing $1.02 billion in Reliance Retail. The deal values its parent company, Reliance Industries, at $57 billion pre-money. The move puts Ambani and Reliance in a position to capitalize on worldwide e-commerce trends and massive growth potential in India. (TECH CRUNCH)

Imma Head Out: Luxury-good giants LVMH Moët Hennessy Louis Vuitton SE is backing out of its $16.2 billion takeover of Tiffany & Co. “LVMH said it no longer wanted to buy Tiffany because the deal was being dragged into the middle of trade disputes between France and the Trump administration.” (WALL STREET JOURNAL)

New Frontier: Sony plans to release nearly 40 podcasts this year and is developing more than 100 original programs. The new lineup of shows represents the most significant investment in the podcast space by a major music label. The company is “eager to cash in on a booming audio business that could siphon away listeners — and advertisers — from radio and streaming services.” (BLOOMBERG)


Apple is unveiling new products on Sept. 15, but it’s unclear whether the tech giant will showcase the first 5G iPhone.

Etsy is joining the S&P 500, which could “fuel additional upside opportunity for [it] when the dust settles across the sector.”

Microsoft announced its next-generation Xbox Series X pricing, which will offer a less-expensive model at $299.

JFrog, a developer tools startup, set a price target between $33 and $37 for its upcoming IPO ($3.1 billion), while data analytics software firm Sumo Logic listed a range of $17 and $21 ($1.9 billion).

Swedish payments firm Klarna is negotiating a new round of funding that would value it at more than $10 billion, nearly double its previous high of $5.5 billion in August 2019.

“Chinese tech giant Baidu is in talks with investors to raise up to $2 billion over three years for a biotech startup, which will use AI technology to discover new drugs and diagnose diseases.”

Netflix is shaking things up, putting Bela Bajaria in charge of global television after it announced Cindy Holland, “an architect of the streaming giant’s original-content strategy,” is leaving the company.

Other Raises: Dawn Capital is closing its $400 million B2B software fund, development security provider Snyk raised $200 million with a valuation of $2.6 billion and biotech firm Zymergen pulled in $300 million in its latest round of financing.

Taboola and Outbrain, two ad-based content recommendation platforms, have called off an $850 million merger that would have valued the company north of $2 billion.

A Couple Cents Featured

Luminar is merging with Gores Metropoulos. Justin Oh breaks down why a company might want to go public via SPACs vs. a Traditional IPO, what a self-driving technology company does and whether he thinks their stock is a buy.
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