Good morning! Today’s word count is 1,679 words, or a 9-minute read. Let’s get to it:
“FDA’s emergency-use approval of convalescent plasma prompts increased appetite for risky assets, putting S&P 500 index on track to hit a record high,” The Wall Street Journal writes.
- S&P 500: $3,418.30
- Nasdaq: $11,449.30
- Bitcoin: $11,659.01
- U.S. 10-Year: 0.633%
Justin Oh’s Quick Read
With an intensely competitive and resourceful Founder/CEO at the helm of a company with 20% revenue growth, 50% EBITDA margins, and a 14x 2021 EBITDA valuation, I am thoroughly convinced that $FB should be a main holding and have it as the No. 2 pick on the ROIC Big Board.
Facebook CEO Mark Zuckerberg Stoked Washington’s Fears About TikTok
In a private dinner at the White House late last year, Facebook CEO Mark Zuckerberg reportedly made the case to President Trump that “the rise of Chinese internet companies threatens American business, and should be a bigger concern than reining in Facebook.” Zuckerberg also spoke about Tiktok with several senators, including Sen. Tom Cotton (R., Ark.), according to reports.
Why It Matters
Few tech companies have as much to gain as Facebook from TikTok’s uncertainty.
- TikTok’s acquisition of more than 100 million U.S. users has become the biggest threat to Facebook’s social media dominance.
- Earlier this month, Facebook launched its TikTok Clone, called Reels, and has actively tried to poach TikTok creators.
- Facebook established an advocacy group called American Edge that began praising American tech companies for “their contributions to American economic might, national security and cultural influence.”
- The closed-door meetings could suggest Facebook “sought to redirect some of the political pressure away from itself onto TikTok.”
It’s unclear precisely what role Zuckerberg’s comments played in the government’s handling of TikTok.
- A White House spokesman said the administration “is committed to protecting the American people from all cyber-related threats to critical infrastructure, public health and safety, and our economic and national security.”
- A Facebook spokesperson said Zuckerberg didn’t remember discussing TikTok at the dinner.
- He also said the CEO’s comments “were tied into Facebook’s campaign to blunt antitrust and regulatory threats by emphasizing Facebook’s importance to U.S. tech pre-eminence.”
Facebook’s advocacy has reportedly angered people inside TikTok.
- TikTok CEO Kevin Mayer publicly accused Facebook last month of “trying to unfairly quash competition.”
- But Buzzfeed News reported in an employee meeting this month, Zuckerberg called the executive order against TikTok unwelcome because “global harm of such a move could outweigh any short-term gain to Facebook.”
Numbers to Consider
- 256 Million — Facebook’s monthly users in the U.S. and Canada as of the end of June.
- $271.07 — FB’s open price Monday.
Justin Oh’s Two Cents:
- Zuckerberg has always been a fierce business competitor, as seen by his famous conflict with the Winklevoss twins and Instagram’s brutal ripping off of Snapchat ($SNAP) stories. We’re starting to understand that his competitiveness even extends to aggressive lobbying (crony capitalism?). Fairness aside, Zuckerberg’s intensity for domination is a rare talent and reminds me of the intensity of the late Steve Jobs. It also helps that he’s a Founder/CEO, as I believe *successful* founder-run companies are run with a certain intensity and willpower you don’t usually see with “career” CEO run companies.
Read More: (WALL STREET JOURNAL)
Peter Thiel-Backed Startup Luminar to Go Public in $3.4 Billion Merger
Luminar Technologies is the latest firm to jump in on the SPAC trend. The Peter Thiel-backed auto tech startup has agreed to a $3.4 billion merger with blank check company Gores Metropoulous Inc. In a crowded market fighting for control in the autonomous vehicle race, the deal bolsters Luminar’s “efforts to get its laser sensors onto the production lines of global automakers.”
Why It Matters
The SPAC boom continues.
- SPACs offer a faster route to a public offering, without the “scrutiny or risks” of an IPO, especially with Covid-19 rocking the market.
- This year has seen a record 78 SPAC IPOs with an average raise of $400 million.
- Luminar isn’t the first auto tech startup to go down this path — Velodyne and Nikola both went public through blank check companies.
Luminar is traversing a crowded startup space.
- The company’s key selling point is its lidar sensors, which bounce lasers off objects to guide vehicles.
- Sensors costs can run into the tens of thousands of dollars and have been an obstacle for companies entering the self-driving market.
- Alec Gores, the CEO of Gores Metropoulos, says Luminar CEO Austin Russell “developed the only lidar technology that meets the most stringent safety specifications of carmakers, and he did so from scratch,” giving the company a considerable edge to dominate the autonomous landscape.
Russell has a patient outlook.
- Luminar aims to sell its sensors for advanced-safety features in passenger cars and driverless trucks first instead of rolling out fully autonomous “fleets of robotaxis.”
- Volvo said Luminar’s tech will enable hands-free highway driving by 2022.
Numbers to Consider
- $31.26 Billion — The gross proceeds of SPAC IPOs in 2020, according to SPACInsider.
- $400 Million — The cash raised from the blank check company to fund the deal and $170 million from other investors including Thiel, a unit of Volvo and GoPro founder Nick Woodman.
- $60 Billion — The estimated value of the autonomous car market by 2030, according to Research and Markets.
Justin Oh’s Two Cents:
- Luminar’s merger with Gores Metropoulos ($GMHI) offers a new, interesting way to invest in autonomous driving, specifically through a LIDAR plus software solution. They basically have no revenue, and at $11.20, it’s valued at around 4.5x “estimated” 2025 sales. But to their credit, it looks like they have a $1-10 billion order book, strong partners, and line of sight to $837 million in 2025 revenue. For reference, Intel purchased autonomous Mobileye for roughly 17x two-year forward sales. This looks like a total speculative bet to me, but it might be fun to catch the retail speculation hype that has been pumping anything tangentially related to Tesla. Just remember that this is a bet on LIDAR technology, despite Elon Musk warning that “anyone relying on LIDAR is doomed.”
Read More: (BLOOMBERG)
Number Crunch: Leaked Screenshots Show Substantial Palantir Loss
According to leaked screenshots obtained by Tech Crunch, data analytics firm Palantir suffered a substantial loss in 2019.
- Palantir generated revenues of approximately $742 million in 2019, a 25 percent improvement from the $595 million of the previous year. But its a disappointment considering the company was reported to be close to $1 billion in revenue for years.
- The firm posted a net loss of around $580 million in 2019, nearly identical to its loss in 2018. The significant losses indicate why Palantir has had to raise billions to keep going and raises the question of when it can self sustain.
- Palantir derived 53.5 percent of revenues from government contracts and 46.5 percent from commercial contracts. Government revenues grew by 76 percent, versus just 27 percent growth in its commercial business.
- Though this year has been kinder to Palantir. The company recorded revenues of $481 million for the first six months of 2020, a 49 percent increase on the same period last year. It also cut its operating expenses by 50 percent during that time frame.
Justin Oh’s Two Cents:
I’ll peek at Palantir’s S-1 when it comes out, but unless the valuation is juicy, it’s not looking like a screaming buy. I really don’t like how dependent they are on government contracts. Government contracts are very sticky, but usually present bureaucratic barriers to growth and profitability. I’m more excited about the Airbnb IPO.
Read More: (TECH CRUNCH)
Worth Your Time
The Big Short 2.0: Some criticize it as bottom-feeding because it preys on failure and can push a business over the edge while contributing little to the economy. But a group of investors’ bet on the coming demise of malls is the kind of brazenness celebrated on Wall Street. And the “Mall Short,” which is being likened to the “Big Short 2.0,” turned into a massive payday for a group that included Carl Icahn as brick-and-mortar retail continues to drown in distress and the business transitions to e-commerce. (NEW YORK TIMES)
Plasma Power: The FDA authorized the use of convalescent plasma, the antibody-rich blood component taken from recovered Covid-19 patients, on an emergency-use basis. The designation, intended to treat severe coronavirus cases, opens up the possibility for faster and easier access to a promising treatment. However, the FDA said, “more clinical studies are necessary to determine proof of the therapy’s effectiveness.” (WALL STREET JOURNAL)
Big Box Dominance: “Nearly six months into the coronavirus pandemic in the U.S., big-box retailers are emerging as business winners while competitors—including some apparel sellers and small businesses—struggle. The big sellers’ strength wasn’t always a sure thing…But now, Walmart, Amazon, Target, Home Depot, Lowe’s and Costco are delivering not only strong sales but also strong profits.” (WALL STREET JOURNAL)
Project Star: Jack Ma’s Ant Group is angling for the highest-ever valuation at the time of a deal for a company going public for the first time on a major exchange. It could be north of $200 billion. With Ant Group finally, in the public eye, it could “shed light on what has been a secret for years: how it makes money.” (WALL STREET JOURNAL)
Twitter flagged one of President Trump’s tweets for dissuading voting as the social media platform begins to enforce its rule more strictly with the election approaching.
Apple is alleging Epic Games “demanded a special deal” after filing for a restraining order that would force significant changes to the Apple store as the battle between the two companies intensifies.
Matt Mullenweg, CEO of Automattic, the operator of the free WordPress platform, announced Apple blocked updates for the iOS version of WordPress until Automattic agrees to support in-app purchases.
Alphabet reportedly weighed participating in a group bid for TikTok — a minority, non-voting stake through one of its investment arms — but has since abandoned the idea.
TikTok officially confirmed its plans to sue the U.S. government, arguing that President Trump’s moves to block the app deprived it of due process and unfairly treated it as a security threat.
With President Trump’s executive order banning WeChat imminent, U.S. officials are reassuring Apple and other American companies that they will be able to continue doing business with WeChat in China.
Covid-19 has lifted government debt to World War II levels, and cutting it won’t be easy.