Good morning! Today’s word count is 1,703 words, or a 7-minute read. Let’s get to it:
Market Summary (10:50am ET): “Big tech stocks like Apple led benchmarks lower, while shares of Covid-sensitive businesses, including cruise-ship operators and airliners, also fell, following news that President Trump tested positive for the coronavirus,” WSJ writes.
- S&P 500: $3,352.83 (-0.80%)
- Nasdaq: $11,201.92 (-1.10%)
- Bitcoin: $10,516.41 (-3.59%)
- U.S. 10-Year: 0.690%
Justin Oh’s Quick Read
See section No. 3 for more analysis on new SPAC stock Hims ($OAC). As far as valuation goes, at $10.80 today, the company is trading around a $1.75 billion valuation, which is a pretty reasonable estimated 13.5x 2021 and 10.0x 2021 Gross Profit. This is a healthy discount to bigger telemedicine companies’ 2021 Gross Profit multiples: $LVGO at 33x, $TDOC at 22x, and $GDRX at 22x. I also really respect Oaktree and legendary investor Howard Marks if that means anything.
So Hims ($OAC) looks like a pretty attractive SPAC stock compared to others we’ve seen. Just remember that early-stage SPAC companies are not core positions; they are highly speculative and belong in the fun “gambling” portion of your portfolio.
Senate Panel Authorizes Subpoenas for Top Social-Media CEOs
The Senate Commerce Committee authorized subpoenas forcing testimony from Facebook CEO Mark Zuckerberg, Twitter CEO Jack Dorsey and Alphabet CEO Sundar Pichai, WSJ reports. No date for a hearing has been announced.
The move is all about reviewing Section 230, a broad set of legal protections giving the companies immunity in “managing content on their sites, as well as privacy and other issues.”
- Zuckerberg and Pichai are fresh off their last testimony before Congress in July; a hearing broadly focused on the monopolistic power Big Tech wields.
- The trio of CEOs reportedly “declined to participate” when asked to testify in mid-September.
“It should speak volumes that every member of this committee just voted to issue subpoenas,” said Sen. Ted Cruz.
- Republicans are concerned social media companies censor conservative content.
- Sen. Maria Cantwell, the committee’s top Democrat, initially opposed the move but relented after the scope expanded to include privacy issues.
Now comes the hard part — determining whether to hold the hearing before or after the Nov. 3 election, though both candidates have strict stances against Big Tech.
- Sen. Brian Schatz, a Democrat from Hawaii, said he worried Republicans “would use the hearing to push the companies to stop taking down false or misleading content.”
- “This feels like an attempt to work the refs five weeks out from the election,” Sen. Schatz said.
The bottom line: The government at least seems to agree on the dangers of Big Tech.
- “Big tech are the robber barons of the 21st century,” Sen. Cruz said.
Social media platforms act as large public forums, so in that sense, they should protect peaceful free speech. But the rub is that anonymous internet commenting has removed our in-person abilities to see nuance and assume good intent, so many free-for-all internet forums devolve into hate and toxicity (even look at a lot of subreddits of old).
The social media giants have been trying to walk the tightrope between over-censorship and letting toxicity ruin the community. But in reality, they are controlled by private corporations, headquartered in very left-leaning regions that have full discretion of what to censor. It’s hard to deny there’s a left-leaning bias to the banning and censorship, even just by way of Big Tech’s employees being Bay Area Californians. Furthermore, they make their money on advertising dollars, and advertisers have a bias against certain types of content.
It’s a seemingly impossible problem to solve. I used to think the problem was how things are censored and that the solution would be technical. But I’m increasingly convinced that discourse was more civil before the internet age because people had to put their names and faces behind what they were saying. You don’t see the same level of vitriol on LinkedIn, for instance. Maybe it’s time to create public forums with actual identities?
Telehealth Startup Hims Strikes Deal to Go Public Through SPAC
Hims Inc. is joining the SPAC wave. The telehealth startup announced plans to go public by merging with a blank-check company Oaktree Acquisition Corp. in a deal valuing the company at $1.6 billion, WSJ reports.
For Hims, it all started with one thought: Why does it take so long to get a doctor’s appointment? Three years later, the San Francisco-based firm has expanded beyond its initial targets of hair loss and sexual wellness, connecting consumers and healthcare professionals across various issues.
Telehealth existed before Covid-19, but quarantine restrictions skyrocketed demand. Hims is betting on the accessibility of virtual healthcare services long-term, well beyond the pandemic scope.
- Hims doesn’t take insurance but offers an easy process at a low price. A primary-care visit on the platform costs $39.
Plans for a traditional IPO shifted after Hims determined the efficient, less distracting SPAC-merger process would be a better fit. With 125 SPAC IPOs and more than $47.5 billion in gross proceeds raised, 2020 is undoubtedly the “year of the SPAC.” Playboy announced its own SPAC merger Thursday.
The Future: Figuring out how to fend off rivals, such as Roman Health Ventures, and scale of effectively remain challenges for Hims. But with more than two million telehealth consultations facilitated since its founding, Hims has an opportunity to become a “digital front door” for healthcare.
Hims ($OAC) is very interesting if you believe telemedicine deregulation will continue, and “patients” will be able to buy prescription or healthcare products online. Hims (and Hers) has excellent branding, experience, and customer satisfaction. After starting with products that treat hair loss and ED, its now launching products and services that treat anxiety/depression, dermatology, and primary care, with possible expansion into the sleep, fertility, diabetes, and cholesterol markets.
Hims expects a 2020 revenue of $138 million, from over 250,000 subscriptions, 91 percent of which are recurring. And they expect revenues to grow 30 percent in the future. It also has very high gross margins of 71 percent (!!). Hims is losing money because of spending on growth, but has strong unit economics, with customer lifetime values of ~$300 versus customer acquisition costs of $110 (~3x return 3-year return per customer acquired).
Number Crunch: U.S. Jobless Claims Hold Steady for Fifth Straight Week
“New applications for unemployment benefits in the U.S. fell slightly last week but remained between 800,000 and 900,000 for the fifth straight week, reflecting a labor-market recovery that is losing momentum,” WSJ writes.
- Weekly initial unemployment claims dropped 36,000 to a seasonally adjusted mark of 837,000 for the week ending Sept. 26.
- The number of people collecting jobless benefits through regular state programs fell by 980,000 to roughly 11.8 million for the week ending Sept. 19, notching its lowest level since March.
- This week’s data will be revised at a later date, according to the Department of Labor. The report was complicated by a backlog of 600,000 Californians who applied for benefits and around 1 million instances where individuals received payments but modified their claim.
- Friday’s jobs report showed “U.S. hiring gains slowed to 661,000 in September.” The unemployment rate dropped to 7.9 percent. The economy has restored 11.4 million of the 22 million jobs lost in the pandemic’s early stages.
- Net hiring fell below 1 million in September for the first time since April. Unemployment is now “in line with previous recessions.” Before Covid-19, the jobless rate was 3.5 percent, a half-century low.
Again: the critical risk that would throw us into another recession would be if, for longer than four to five months, lockdowns, job losses, and hiring decreases continue, and government stimulus isn’t there to support additional spending after consumers burn through household savings.
What’s Going On
Covid-19 Positive: “President Trump and first lady Melania Trump tested positive for Covid-19, injecting fresh uncertainty into an already tumultuous final stretch of the 2020 campaign. His announcement, which he made on Twitter, came hours after the confirmation that Hope Hicks, a top adviser who traveled with him earlier this week, had tested positive for the virus.”
- Vice President Mike Pence and Second Lady Karen Pence tested negative this morning.
- Democratic Nominee Joe Biden and his wife, Jill, are being tested for the virus.
The Electric Slide: “Tesla delivered a record number of cars worldwide in the third quarter, smashing analysts’ estimates and maintaining its dominance in electric-vehicle sales. The Palo Alto, California-based carmaker delivered 139,300 cars, eclipsing its prior all-time high of 112,000 in the fourth quarter of 2019 and above the 129,950 projected by analysts surveyed by Bloomberg.”
Switching It Up: “The U.S. government is relinquishing control over supplies of remdesivir, the Covid-19 drug made by Gilead Sciences that had been in shortage since it was authorized for emergency use in May. Starting Thursday, Gilead will sell the drug directly to hospitals in the same way it does other medicines based on market demand. Gilead also said it is now able to meet current and future U.S. demand for remdesivir, which is sold under the brand-name Veklury, even in a potential worst-case scenario where there are large spikes in cases in the fall.”
Slow Raise Day: Air quality monitoring service Airly raised $2 million, Indianapolis-based customer branded customer experience tracking startup added $2.8 million and Paired, an app that wants to support “happier and healthier” relationships between couples, picked up $1 million.
Relief Stalled: “U.S. stimulus talks remain on life support after the House passed a Democrat-only $2.2 trillion package that did nothing to bridge the gap with Republicans.”
Crisis Management: “Amazon.com on Thursday said more than 19,000 of its workers have tested positive for the novel coronavirus, the first time so major a U.S. employer has disclosed such data.”
Momentum Generation: “The U.S. auto industry’s recovery gathered momentum in the third quarter, with sales at automakers rebounding from coronavirus-related lows and buyers returning to showrooms.”
Bang the Drum: “Major oil companies signaled they remain under extreme financial pressure and oil prices slid Thursday as demand for fossil fuels rebounds slowly after being crushed by the coronavirus pandemic.”
Pixelated Problems: “After failing to sell as many of its Pixel smartphones as it made last year, Google will produce fewer than 1 million of its new Pixel 5 smartphones, reported Nikkei Asia, which cited unnamed sources.”