Good morning! Today’s word count is 1,779 words, or an 8-minute read. Let’s get to it:
Market Summary (10:25 A.M. ET): “The Dow and S&P 500 ticked up as retail sales data beat expectations, signaling potential mild gains to end to a volatile week on Wall Street,” WSJ writes.
- S&P 500: $3,511.24 (+1.02%)
- Nasdaq: $11,824.55 (+0.94%)
- Bitcoin: $11,367.61 (+2.81%)
- Gold: $1,912.40 (+0.17%)
- U.S. 10-Year: 0.738%
Justin Oh’s Daily Read
I was asked by ROIC member Roger E. in last night’s YouTube Live about PayPal ($PYPL) since I like Square ($SQ) a lot as a long-term growth investment. Square and PayPal are trading at almost the same valuation at 18.3x forward expected Gross Profit. In that regard, I really like $PYPL too.
But if I were to pick between the two, I would choose Square. Square is smaller (revenues of $7.5 billion versus PayPal’s $21.4 billion) and expects to grow faster off of a smaller base (mid 20% growth rates versus Paypal’s high teens growth rates). I also like Square’s sticky positioning with retailers because of its core competency as a modern point of sale (POS) system. I also enjoy observing their innovative leadership, as shown by their recent investment in Bitcoin. On the other hand, I think PayPal’s Venmo is a better product than Square’s Cash App, but there is room for both on every phone.
If you’re less confident about $SQ specifically but believe in the disruption of payment processing and digital transfers generally, I wouldn’t feel shy buying and holding both for the long term. But for now, I’m comfortable owning $SQ for my exposure to the FinTech space.
Amazon’s Prime Day Accelerates Shift to Online Shopping
Count Amazon Prime Day 2020 as a massive success, with consumers spending billions to kick off a holiday season “expected to be dominated by e-commerce shopping,” WSJ reports.
Up And Down: Overall spending on Amazon rose 36%, according to Edison Trends. But that was 42% lower than the increase from 2019.
The Takeaway: Amazon already has made record profits this year. eMarketer projected its U.S. Prime Day sales would hit $6.17 billion. Amazon doesn’t disclose sales, but it said third-party businesses sold 60% more products ($3.5 billion) on Prime Day than the year before.
- Online sales elsewhere also grew 76%, showing e-commerce competitors, such as Walmart, Target and Best Buy, have to react when Amazon makes a move.
Prime Day offered a glimpse of how online spending will play an expanded role during the holiday season.
- With Covid-19 risks ever-present, many retailers plan to offer online deals to reduce crowds.
- Numerator surveyed over 2,000 shoppers and found more than half are “primarily shopping online for the holidays,” roughly double last year’s mark.
Still, Prime Day is just a small piece of the pie. The U.S. holiday season generated $1 trillion in revenue last year. While total e-commerce sales are expected to grow at 35%, nearly double the rate last year, it’s still worth roughly $190 billion, which is not even 20% of yearly holiday spending.
Black Friday is still king, as many analysts expect a high percentage of holiday shopping to occur during the retail holiday.
- Though, research firm NPD Group polled 3,500 shoppers and found that 14% of consumers planned to start their shopping on Black Friday, down from 17% a year earlier.
Pfizer Could Apply for Emergency Use of Covid-19 Vaccine by Late November
Assuming Pfizer’s experimental Covid-19 works and is proven safe, the company announced it could apply for emergency-use authorization by late November, WSJ reports.
A Huge Development: While other advanced candidates from Johnson & Johnson and AstraZeneca have run into obstacles, Pfizer is now the first Western vaccine developer to offer a specific timeline.
- China and Russia have already authorized limited use of their own vaccines.
A Matter of Time: Pfizer, which is co-developing the vaccine with BioNTech SE, expects data on the candidate’s effectiveness by the end of October. Safety data should follow by the third week of November, according to the company.
- Quality assurance date, which will ensure the drug can be manufactured at a large scale, will also arrive sometime before the safety data.
- Once Pfizer has this information, it plans to file for emergency-use authorization in the U.S. and an application with the European Medicines Agency shortly after.
Rising Demand: Pfizer and BioNTech have been ramping up production to meet the world’s needs if all goes to plan. The partnership has committed to supplying more than 450 million doses this year and next, contingent on safety, efficacy and government approval.
- The U.S. government ordered 100 million doses with an option to purchase 500 million more in a $1.95 billion deal.
- The European Union: 200 million doses (option to buy 100 million more, Japan: 120 million doses, Britain: $30 million doses
Pfizer-BioNTech initially planned to produce 100 million doses of its two-shot vaccine globally this year, enough for 50 million people. It’s unclear how much they’ve made to this point.
The best-case scenario regarding the pandemic I foresee is that a vaccine is distributed in Q1, but people don’t start taking the vaccine in meaningful numbers until mid-2021. I also anticipate a reluctance by many to take the vaccine, at least in the U.S., due to the perception that it’s been rushed.
Covid-19 has already infected 8 million Americans, and I believe that as time goes on, people will push to open up the economy more and more, and individually either take the vaccine or start accepting the risk of contracting it. I believe a lot of non-elderly people are already beginning to reduce the strictness of their quarantines unconsciously. Before we are back to normal, more than half of the population will need to have immunity either by contracting it or getting vaccinated.
Pandemic Aid Swelled Savings of the Unemployed, Study Shows. Now They Are Running Low.
“Emergency pandemic relief doubled the savings of unemployed Americans over the spring and summer, but most of that cushion was depleted by the end of August, new research shows,” WSJ reports.
The University of Chicago and JPMorgan Chase Institute published a study Friday, finding workers cut back spending in August once the enhanced, $600-per-week benefits expired.
- In the first month without the extra money, they spent two-third of the savings accumulated during the last four months.
- The study used data from around 80,000 families who had a Chase credit card or bank account and received jobless benefits.
So, that explains why household spending in August was better than economists expected. But it also signals a “vulnerability for the U.S. economy in the months ahead.”
- As savings dwindle with no relief package remotely close, some 11 million unemployed workers could fall behind on debt or rent payments and have to cut spending further.
Bitter Dispute: Congressional Democrats and the White House remain in negotiations on a follow-up stimulus package. The $2.2 trillion Cares Act passed in March with enhanced unemployment support shepherded Americans through the Covid-19 lockdown.
- A deal is unlikely before the election. The sides are too far apart on the size and scope of a potential package.
- Federal reserve officials and many economists project that a lack of stimulus could slow recovery and lead to long-term economic damage.
University of Chicago Economist Peter Ganong: “The economy right now is essentially running—or not running—on the exhaust fumes of the CARES Act.”
If unemployed households are running out of savings only two months after enhanced benefits are running out, it’s a cause for concern. I don’t believe the stock market is in real trouble until we see signs that consumer spending will take a hit. As seen with this morning’s data, this hasn’t happened yet that U.S. retail spending picked up strongly in September (1.9% increase).
A potential bear market would be likely if the economy maintains its lockdowns, and additional stimulus is either not significant or targeted enough or doesn’t get passed. If millions of Americans burn through all of their savings and can’t spend, corporate profits go down. When corporate profits go down, employers shed more jobs, which would add to an already weak job market.
What’s Going On
Annulled Marriage: “Regulators with the DOJ’s antitrust division recently informed executives of AT&T that a marriage between DirecTV and Dish would likely have to wait until faster 5G wireless service is more widely available in rural markets, two sources close to the situation said. Regulators remain concerned that a union could lead to higher prices in areas lacking high-speed Internet access, including tribal lands, these sources said.”
We’ve Only Just Begun: “Airlines say they believe they have made it through the worst of the coronavirus pandemic. So now what? After pulling together over $100 billion by tapping government aid, mortgaging assets including planes and frequent flier programs, airlines likely have enough cash to withstand a prolonged downturn, Cowen & Co. analysts say. But it will be years before passenger demand recovers, chief executives of United Airlines Holdings Inc. and Delta Air Lines Inc. said this week.”
Spend More, Save Less: “U.S. retail sales increased in September for the fifth month in a row, as consumers prepared for further months of working and studying from home by spending on vehicles, sporting goods and at home-improvement stores. A measure of purchases at stores, restaurants and online, retail sales increased a seasonally adjusted 1.9% in September from the prior month, the Commerce Department reported Friday, outstripping economists’ expectations for a 0.7% rise.”
Raise Watch: Electric battery developer Proterra raised $200 million, small business marketing and payments startup Fivestars collected $52.5 million, live-coaching fitness app Future added $24 million and Atlanta-based Speedscale netted $2.2 million to grow its API test automation business.
Chapter 11: “Hertz Global Holdings Inc. has arranged a new $1.65 billion debt package to help fund its bankruptcy case, the car rental giant said Friday.”
Day Trade Hack: “Almost 2,000 Robinhood Markets accounts were compromised in a recent hacking spree that siphoned off customer funds, a sign that the attacks were more widespread than was previously known.”
Tag Team: “Uber Technologies said on Friday it will invest more than $150 million in a joint venture and partnership with South Korea’s SK Telecom Co Ltd, which is proposing to split off its mobility business.”
Surprise, Surprise: “The maker of Mercedes-Benz cars, [Daimler], unveiled much better-than-expected third-quarter numbers, in a surprise update ahead of its full earnings report next week.”
Factory Gut Punch: “U.S. manufacturing production unexpectedly declined in September, the first decrease in five months, pointing to a setback for factories as the pandemic drags on.”
Return of the Max: “Europe’s aviation regulator has declared Boeing’s 737 Max aircraft safe to fly after it was grounded in March 2019 following two accidents that left 346 people dead.”