TikTok, Kevin Mayer, Abbott Labs, Covid-19 Testing and Xpeng, the “Tesla of China”

TikTok CEO Kevin Mayer resigns, Abbott Labs gets emergency approval on its Covid-19 rapid test and the "Tesla of China" seeks to raise $1.5 billion from its IPO.
(By Koshiro K)
(By Koshiro K)
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Good morning! Today’s word count is 1,523 words, or an 8-minute read. Let’s get to it:

“U.S. stocks climbed as Federal Reserve Chairman Jerome Powell said the central bank would abandon its policy of pre-emptively raising rates to head off inflation,” WSJ writes.

  • S&P 500: $3,489.04
  • Nasdaq: $11,660.71
  • Bitcoin: $11,349.28
  • U.S. 10-Year: 0.716%

Justin Oh’s Quick Read: $CRM

I extolled Salesforce’s ($CRM) fundamentals and am reiterating how much I believe in its business quality. But it’s hard to justify buying the stock when it jumps 25 percent after a 5 percent revenue and earnings beat. It looks more reasonable when we realize that we can increase our growth expectations to 30 percent in the near future. Extrapolating that growth, $CRM seems to be trading at >10x forward Gross Profit and >26x 2021 EBITDA, which looks slightly elevated compared to historical multiples. $CRM has always been expensive and has continually commanded elevated valuations, which will deter some investors. But if you want to own this compounder, I would still probably wait until the stock is under $245 per share for a reasonable entry point.

TikTok CEO Kevin Mayer Resigns

When Kevin Mayer left Disney to join TikTok in May, it seemed like a win-win move. Mayer, who oversaw Disney’s streaming divisions and helped steer the company toward landmark purchases such as Pixar, Marvel, Lucasfilm, Club Penguin and Maker Studios, would give the TikTok an American face as its CEO and alleviate some of the mounting political pressure. But just a few months into his tenure, Mayer has resigned.

Why It Matters

TikTok’s situation has drastically changed in the last few months.

  • President Trump signed an executive order mandating ByteDance to offload TikTok’s U.S. operations.
  • If a sale isn’t agreed to within 45 days of the order, and then completed after 90 days, the app would be banned in the U.S.
  • Microsoft and Oracle are potential buyers, and Japanese tech conglomerate SoftBank Group expressed interest in joining a deal for the app.
  • Other Chinese companies Huawei Technologies and Tencent, maker of the WeChat app, have found themselves caught in the middle of U.S.-China tensions.

Mayer’s decision stems from the shifting geopolitical landscape and increasing pressure from the White House.

  • “I understand that the role that I signed up for—including running TikTok globally—will look very different as a result of the U.S. administration’s action to push for a sell-off of the U.S. business,” Mayer said in a departure letter to his employees.
  • “I’ve always been globally focused in my work, and leading a global team that includes TikTok U.S. was a big draw for me,” he added.

It’s a problematic audible for ByteDance.

  • Mayer’s hiring was initially intended to help grow the business in the U.S. and other parts of the world.
  • “Kevin spoke to me, and I fully understand that the resulting outcome that we land upon due to the political circumstances we are operating within could have significant impact on his job in any scenario, but particularly his global role while he’s based in the U.S.,” ByteDance founder Zhang Yiming said.
  • In the interim, TikTok general manager for North America Vanessa Pappas will take over as head of TikTok.

Numbers to Consider

  • Mayer’s tenure lasted 100 days.
  • TikTok has 100 million users in the U.S.
  • To date, the app has been downloaded 2 billion times globally.


Abbott’s $5 Covid-19 Rapid Antigen Test Gets Emergency-Use Status From FDA

“The U.S. Food and Drug Administration has granted emergency-use authorization to Abbott Laboratories for a $5 rapid-response Covid-19 antigen test that is roughly the size of a credit card,” WSJ writes.

Why It Matters

It simplifies the Covid-19 testing process.

  • The test can be administered virtually anywhere and using the same technology as a pregnancy test.
  • It returns results in roughly 15 minutes.
  • Rapid testing and access to improved Covid-19 diagnostic tools, which render a diagnosis in minutes, not days, make it easier to contain infections.

Rapid testing is a partial key to a return to a semblance of normalcy.

  • Abbott plans to ship tens of millions of tests in September and ramp it up to 50 million during October.
  • If the company can do it, the U.S. would roughly double the amount of testing conducted in July.
  • “Some public-health officials and lab executives say lower-cost rapid tests that can be produced at scale are an important factor in the country’s ability to return to work and school.”

Other rapid tests received emergency approval, though.

  • They use cartridges that are analyzed by “box-like” machines in doctor’s offices and nursing homes.
  • These tests range in price from $15 to $50 but are generally free for those exhibiting symptoms or known exposure.
  • However, demand for these tests outstrip production capabilities, creating a shortage.
  • Abbott also makes other types of Covid-19 tests, including “a rapid molecular test used by the White House that delivers results in under 15 minutes.”

Numbers to Consider

  • Abbott said the new tests provide accurate results around 97 percent of the time.
  • Earlier this year, the company invested in two U.S. production facilities to produce the high volume of tests.

Justin Oh’s Two Cents:

Abbott stock ($ABT) popped >6 percent from the news of its antigen test approval. But even if Abbott sells a $5 test for every American per year, it would only increase sales 5 percent per year. Given the tests are similarly priced to Starbucks coffees, I highly doubt they are very profitable. Furthermore, these tests have competition, and sales will materially decrease after vaccines and therapeutics are widely distributed. Although the news reaction is overblown, it’s trading at approximately a 4 percent forward free cash flow yield, which seems reasonable. If you believe that they’ll see meaningful, profitable growth in medical and testing devices in the future, it might be an attractive stock for some healthcare allocation.


Number Crunch: Chinese Tesla Rival to Raise A Billion-Plus in U.S. IPO

Xpeng Inc., which is being dubbed the “Chinese Tesla,” plans to raise $1.5 billion in its initial public offering, a larger sum than expected due to high investor demand.

  1. “Xpeng will sell 99.73 million American depositary shares at an offer price of $15, the company said Thursday.” It’s nearly 15 million more shares than previously planned at the initial guidance of $11-$13.
  2. The electric vehicle maker joins more than 20 other Chinese tech companies to hit the U.S. market this year by listing on the Nasdaq or the New York Stock Exchange. The gross proceeds have totaled more than $6 billion.
  3. China’s electric vehicle faced declining sales last year. But following the $1 billion domestic raise by Nio, the highest-profile Chinese EV startup, China’s EV industry has surged. Nio’s shares have rallied from under $3 to $18, alleviating any fears about its solvency.
  4. “Xpeng, which produces the P7 sports sedan and the G3 SUV, sold 4,696 vehicles in the first half of 2020, according to LMC Automotive, lagging behind its startup peer Nio, which had sold 14,781 during the same period.”
  5. Xpeng added Thursday that underwriters could sell an additional 14.96 million American depository shares under a green-shoe option.

Justin Oh’s Two Cents:

Xpeng is an utterly speculative stock, and I wouldn’t buy it. We don’t know how they’re going to compete against Nio, Tesla, and others. It’s seeing revenue declines compared to last year. Lastly, they don’t even sell the cars profitably yet! If you’re looking for an overpriced EV stock, just by $TSLA and hope for more hype (which I don’t recommend).


Worth Your Time

This Or That: Jack Ma’s Ant Group, creators of the popular payment app Alipay, has a billion users in China and has changed how many people spend, borrow and invest. But Ma and Ant Group sees itself as a tech company, not a financial services firm. And while it’s not a financial institution, Ant Group owns businesses, subsidiaries and affiliates overseen by financial regulators, leaving it in the crosshairs of China’s regulatory instruments as it approaches its IPO. (WALL STREET JOURNAL)

Two Is Better Than One: “A merger announced Wednesday will create the nation’s largest Black-controlled bank and the first with assets of more than $1 billion. Broadway Federal Bank, a Los Angeles-based commercial lender, will combine with City First Bank in Washington…A recent study by the Federal Deposit Insurance Corporation found that such minority-led institutions outperformed traditional banks in originating mortgages and federally backed small-business loans to borrowers in low- and moderate-income census tracts.” (NEW YORK TIMES)

Mixed Messages: When the pandemic hit, Salesforce CEO Marc Benioff promised the company would avoid significant layoffs for 90 days, calling on other CEOs to follow the “no layoff” pledge. Well, so much for that. Just a day after Salesforce reported record sales and sent its stock surging, the business software company started notifying around 1,000 of Salesforce’s 54,000 employees their position was being eliminated and have 60 days to find a new role within the company. (WALL STREET JOURNAL)


New jobless claims have hovered around one million for weeks, indicating a stagnated economic recovery from the Covid-19 pandemic.

Federal Reserve Chair Jerome Powell announced a new approach to policy where the Fed will seek inflation that averages 2 percent over time.

Facebook says Apple’s iOS 14 update will kill its ability to place personalized ads, dealing a critical blow to app makers and the social media platform’s Audience Network business.

Private equity giant KKR is pouring $150 million into Chinese online learning startup Huohua Siwei.

Delivery Hero, “the Berlin-based restaurant delivery company that operates mainly in emerging markets,” has acquired InstaShop, a Dubai-based online grocery service, for $360 million.

“Narrative has raised $8.5 million in Series A funding and is launching a new product designed to further simplify the process of buying and selling data.”
Website builder Wix is adding more payment and e-commerce tools, which could further extend its hot streak.

A Couple Cents Featured

Is it worth buying Palantir stock when it goes public, or are there better bets out there? Justin Oh gives his Two Cents.
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