Morning Cents: June 30, 2020

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June 30, 2020 – Uber sets its sights on Postmates, freelancers struggle in L.A. and the U.S. halts high-tech exports to Hong Kong.

Today’s newsletter is 1,048 words, a 6-minute read. Let’s get to it:

Uber in Talks to Buy Postmates for About $2.6 Billion

Just weeks after Uber’s efforts to buy Grubhub fell through, the company is on the verge of nabbing a rival food delivery service. Uber is in discussions to buy Postmates for around $2.6 billion. Nothing is final yet, but a deal could come together next week, if not sooner.

Why It Matters

The food delivery industry was already rapidly consolidating. The coronavirus pandemic then forced people into their homes, and demand for online food delivery exploded, making the space even more cutthroat.

Uber already has an international footprint and the second-largest market share in the U.S.’s food delivery market under its own food-delivery arm, Uber Eats. But the acquisition of Postmates could propel the business to new heights. And after missing out on Grubhub and considering DoorDash’s massive valuation, Postmates could be a cost-effective alternative to further enhance Uber’s business.

Numbers to Consider

  • $29.63 – Uber’s share price this morning.
  • $7 Billion – The price Just Eat Takeaway.com paid to acquire Grubhub.
  • $16 Billion – DoorDash’s estimated valuation.


In Los Angeles, an Economy Built on Freelancers Crumbles

It’s no surprise the gig economy is struggling in the pandemic. If creative freelancers can’t leave their homes, chances are they can’t work. In Los Angeles, performers, production crews, ride-share drivers, personal trainers and more are among the city’s creative workers who have been hit hardest by the tumultuous economic conditions. They were the first to lose work and will likely be part of the last group to return.

Why It Matters

Los Angeles has always been a hub for creative workers, its core to the city’s identity. L.A. has the second-highest concentration of high-skilled freelancers, after Nashville, according to Fiverr International Ltd. But with the sixth-highest unemployment rate among major metropolitan areas in April, some freelancers are considering leaving L.A. entirely.

A lot of creative workers pay their bills through a second, third or fourth job. Now, as the market floods with unemployed talent, many are being asked to do more for less or no pay at all. The federal emergency aid package from March opened up freelancers and gig workers to state unemployment benefits, but only through the end of the year. And the federal boost to those payments ends in the last week of July.

L.A.’s economy has a tough recovery ahead. “Along with film and the arts, it is driven by hospitality, high-tech manufacturing and international trade, all industries devastated by the pandemic and likely slow to return,” The Wall Street Journal writes.

Numbers to Consider

  • 100,000 – The number of Covid-19 cases in Los Angeles, the second-most in the nation behind New York City.
  • $450 – The weekly benefits workers are receiving through California unemployment benefits. Federal aid provides a $600 boost as well.
  • 21 Percent – The unemployment rate in L.A. for May, according to state figures.


U.S. Halts High-Tech Exports to Hong Kong Over Security Concerns

The U.S. is halting high-tech exports to Hong Kong in response to Chinese lawmakers approving a national security law that could drastically curb free speech in Hong Kong. As Beijing tightens its grip on the territory, Hong Kong’s autonomy and privileged status in the eyes of the U.S. is drifting away.

Why It Matters

The actual effect of the new restrictions is limited. The U.S. only does a fragment of its business with Hong Kong, and defense and high technology are only a segment within that.

“But the export limitations announced Monday could have larger implications for some multinational companies, including some semiconductor firms, who now will be barred from sending products or sharing certain high-tech information with the territory. Some multinational companies that chose Hong Kong as a base for doing business with China have begun considering moves to other locations, including Singapore,” The New York Times writes.

Hong Kong has thrived financially on its proximity to China and its independent courts since the British ceded it back to China in 1997. But as China exerts control and the U.S. distances itself from a potential “security risk,” Hong Kong’s future is threatened.

Numbers to Consider

  • 2.2 Percent – The share of U.S. exports Hong Kong represented in 2018. Defense and high-technology items were only a sliver of that.


A Quick Look

Lululemon to Acquire Fitness Company Mirror

  1. Lululemon is buying Mirror, a developer of home fitness equipment for $500 million. It’s a big step for Lululemon, as they transition from athletic apparel to home fitness. Lululemon first invested in the firm in 2019.
  2. Mirror, founded in 2016, has raised $72 million in venture capital to date and had a valuation of around $300 million last year.
  3. Mirror is on pace to earn $100 million this year and could become profitable as soon as 2021.


Worth Your Time

Another Nail For the Heart: Boeing’s efforts to get the 737 MAX back in the air took a hit Monday after Norwegian Air Shuttle canceled its order for 92 of the troubled jets. Boeing just began its series of regulatory test flights, but the loss of business is another blow to an already financially strapped plane manufacturer. (WALL STREET JOURNAL)

The Change Came Suddenly: The oil industry is taking a bath, and Shell is the latest victim with a $22 billion write-down. Covid-19 has resulted in companies questioning the value of their reserves. Shell’s move follows a similar one by BP. Is this the start of a fundamental change in the oil and gas sector? (WALL STREET JOURNAL)

Carry That Weight: When the Trump Administration announced its $670 billion pandemic relief program for small businesses, many worried there wouldn’t be enough to go around. But three months in, roughly $134 billion remains in the fund. There’s bipartisan support to reinvest it back into small business relief, but no clear consensus on how to do so. (WALL STREET JOURNAL)

A Couple Cents Content

I posted part two of Justin Oh’s conversation with truck industry expert Jeffrey Whitcomb – check that out (POST)

Justin Oh explains why dividend investing isn’t optimal (TIK TOK)

ICYMI: Justin Oh talked Alibaba, Tencent, institutional investing and the future of retail on his live show Monday (YOUTUBE)


See you tomorrow!

— Justin Birnbaum

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