Good morning! Today’s word count is 2,180 words, or a 10-minute read. Let’s get to it:
“The S&P 500’s climb signaled a tepid rebound as investors weigh the prospect of renewed restrictions due to rising coronavirus infections damping the economic recovery,” WSJ writes.
- S&P 500: $3,275.77
- Nasdaq: $10,783.75
- Bitcoin: $10,467.91
- U.S. 10-Year: 0.672%
Also, be sure to enter the new, weekly giveaway in Morning Cents every day.
Justin Oh’s Quick Read
Here’s an interesting stock that came up on my screen this morning. eHealth ($EHTH) is an online marketplace for Medicare health insurance whose stock dropped aggressively on a Q2 report of increased member churn and cash flow guidance. There are definitely problems with the business, with more than 40 percent of customers churning within 12 months and a low 10 percent retention rate, which worries me. But the company’s management has pledged to address this issue, and its growth trajectory still seems intact, with revenues expected to triple in the next 3-5 years. At $75 per share, $EHTH trades at a reasonable 8.5x 2021 EBITDA and a paltry 3.5x 2023 EBITDA if they can deliver on their expected growth. Average analyst price targets are around $130 per share, representing a 70 percent-plus upside to the stock. I will add this as a speculative stock to consider, but I will need to do more research to upgrade it to a proper growth position on the ROIC Big Board.
What To Expect On Tesla’s Battery Day
It’s battery day, folks! After months of pandemic-related delays, Tesla plans to unveil its latest battery technology in conjunction with its annual shareholder meeting. Here’s everything you need to know:
Elon Musk has been dropping hints along the way.
- Musk issued a public plea on a recent earnings call for people to “please mine more nickel,” an essential ingredient in battery production.
- Last month, he tweeted about plans for a 400 watt-hours per kilogram cell. Musk said the tech is attainable in possible three or four years and would double today’s energy storage capacity.
- Musk tweeted Monday again, saying the announcement would affect the long-term production of Tesla’s pickup truck, semi-truck and roadster sports car. But it wouldn’t reach serious production levels until 2022.
Battery technology is the “secret sauce behind today’s electric vehicle revolution.”
- Tesla made EVs more affordable by using lithium batteries similar to the ones found in consumer goods. But EVs are still expensive, and the prices need to come down further to disincentivize people from using gas.
- Tesla has helped lower batter costs from more than $600 kilowatt-hours to around $150 kWh today, according to Bernstein Research.
- If that cost came down $50 to around $100 kWh, it would put the cost of EVs on par with gas-powered vehicles.
Tesla isn’t the only company pushing innovation in the battery space.
- GM and South Korea’ LG Chem partnered to build a $2 billion battery factory in Ohio.
- Chinese EV and battery maker BYD developed a new battery design that doesn’t use cobalt and is cheaper and safer than many EV batteries.
- Former Tesla CTO JB Straubel has a new venture that recycles critical raw materials from old battery cells to power new vehicles, saving a large chunk of the cost in the process.
Musk is pretty hit or miss when it comes to these events.
- Last year, Musk “laid out a vision for an on-demand robot taxi fleet that he promised would begin this year, and that hasn’t yet come to pass.”
- Musk’s rocket company, SpaceX, started ferrying astronauts to space this year, something “few would have deemed possible when the company was founded 18 years ago.”
Numbers To Consider
- LG Chem is the most prominent cell provider in the space, possessing a 30 percent market share while working with GM, Tesla and other carmakers.
- Tesla stock opened at $453.13 Tuesday, with a market cap of $403.93 billion, according to Yahoo Finance.
Justin Oh’s Two Cents
Tesla ($TSLA) being able to sell EV’s with equivalent or better range than standard gas cars is one of the last hurdles before I believe Tesla could start selling as many vehicles as the largest auto manufacturers. The final hurdle would be to make superchargers ubiquitous by Tesla enabling charging basically anywhere. But even if Tesla can become as big as Ford at $120 billion in revenue by 2025, $TSLA is currently trading at 20x a possible 2025 EBITDA of $20 billion. That’s a lot of time to wait for earnings to catch up to what is still a very high valuation, especially for a company and CEO that tends to over-promise on timelines. And so the only way I see $TSLA stock being a justifiable hold is if one has a high-conviction view on whether they’re able to do robo-taxis and trucks within the next 4-7 years.
Read More: (WALL STREET JOURNAL)
Quibi Explores Strategic Options Including Possible Sale
When the news broke Monday, The Ringer’s Rodger Sherman said it best: “Ironically, Quibi existed for exactly 10 minutes.” After a rough launch and months of struggles, Quibi is now looking at its strategic options, including a possible sale, additional capital raise or merger with a SPAC. Though there is no guarantee that Quibi will pursue any of these options.
Why It Matters
Quibi sought to be a disruptor.
- Movie mogul Jeffrey Katzenberg, who ran Disney’s movie business, co-founded DreamWorks and led its animation spinoff DreamWorks Animation, founded the company in 2018, and raised nearly $2 billion in funding since.
- The company aimed to target on-the-go viewers, producing short-form shows with episodes between five and 10 minutes.
- Quibi spent aggressively on its content offering, creating shows with Chrissy Teigen, Laurence Fishburne, Sophie Turner, Joe Jonas and Zac Efron. It also recruited technology industry veteran and former Hewlett Packard CEO Meg Whitman to join the company.
Instead, Quibi ran into a pandemic-driven buzzsaw.
- The Covid-19 pandemic kept people in their homes when the app launched in April, temporarily removing the need for on-the-go programming.
- Quibi is now on pace to miss its initial paid subscriber target by a large margin, according to someone familiar with the matter.
Pandemic aside, the streaming marketplace is only getting more competitive.
- Almost every major media company — Warner Media, Disney, NBCUniversal, ViacomCBS and Discovery — has a streaming service.
- Because of its short-form style, Quibi is also competing with YouTube and other ad-supported video platforms.
Quibi is in legal trouble, making it all the more complicated.
- Interactive video company Eko is suing Quibi, claiming the latter violated its patents and stole trade secrets. Quibi has denied the allegations.
- Hedge fund Elliott Management Corp. recently took a stake in Eko and promised to back the lawsuit, giving Quibi a deep-pocketed adversary.
Quibi is burning through cash rapidly, making any comeback is an uphill battle.
- Quibi raised an additional $750 million in March, bringing its funding total to $1.75 billion.
- The company estimated it would spend around $1 billion by Q3 as it invests in marketing and new content.
- Before the pandemic, Quibi anticipated a $550 million operating loss in 2020. Though, the company does have enough cash on hand to keep going for the next several months.
Numbers To Consider
- In July, Quibi reportedly lost 92 percent of its earliest users after free trials expired, retaining only 72,000 of 910,000 sign-ups.
- When Disney+ launched, it converted 11 percent (around 1 million users) to paid subscriptions.
Justin Oh’s Two Cents
I tried Quibi out for a bit, and the product is definitely novel and well-done but misses some essential marks. First, many viewers want to watch television shows and movies with friends and family, which you can’t really do with a vertical, mobile format. Second, the viewer’s brains on mobile have uniquely short attention spans, so glossy 7-10-minute videos are not as entertaining as 1-5-minute clips. Third, mobile users want to engage with mobile content with comments and social media, which Quibi does not understand. And finally, it just makes my arm tired having to hold up my phone for 10 minutes straight.
Read More: (WALL STREET JOURNAL)
Number Crunch: Laid-Off Workers Cut Spending, Hunt for Jobs as Extra Unemployment Benefits Run Out
The $600-a-week enhanced unemployment benefits, passed as part of a pandemic stimulus package in March, gave jobless workers the necessary cushion to survive these rocky economic times. But those benefits expired at the end of July, “leaving some laid-off workers trying to make ends meet six months into a pandemic that still doesn’t have an end.”
- At the start of September, around 13 million people were collecting state unemployment benefits, which cover most workers. Millions more are collecting checks through other federal and state programs — including one for gig economy workers.
- The unemployment rate has fallen to 8.4 percent from its pandemic peak of 15 percent. But that’s still well-above the pre-pandemic level of 3.5 percent.
- President Trump took action last month, assigning an additional $300 in benefits per week. But it will only last six weeks, and Congress has yet to find a long-term solution.
- Many jobless workers are still waiting on that $300, which means they are drawing on an average of $326 from regular state weekly unemployment benefits.
- University of Chicago economist Peter Ganong estimated the $300 in supplemental benefits put around 48 percent of workers above their previous income levels. In comparison, the $600 supplement put roughly 76 percent in a situation where they were making more money.
Justin Oh’s Two Cents
What happens when 4 percent of the population runs out of unemployment benefits and starts running out of money? Given the labor force participation rate is at 62 percent right now, that would imply 6.5 percent of workers running out of money in a weak job market. Consumer spending will absolutely take a hit, but I know not where. The beauty of grocery stores and Dollar General is that they should hold up fine, but do we see more Netflix cancellations, less spending on e-commerce or travel? My gut is that sectors like travel, leisure, and autos are vulnerable, but real estate, consumer staples, and healthcare are resilient. And the jury is out how it might affect technology stocks.
Read More: (WALL STREET JOURNAL)
Worth Your Time
Vax Race: Pfizer’s experimental Covid-19 vaccine, co-developed with BioNTech SE, might be the first in the race to yield results. The companies plan a first look at the data after “a mere 32 coronavirus infections have accumulated in their massive 44,000-person trial,” and that case total could be reached as early as next week. The hasty timeline has left some observers uneasy, including Medscape editor-in-chief Eric Topol: “It’s obvious why it is being done: so you can just keep looking at the data to try to win a race.” (BLOOMBERG)
The Blacklist: “Beijing has sped up development of a blacklist that could be used to punish American technology firms, but officials say leaders are hesitating to pull the trigger, with some arguing a decision on the list should wait until after the U.S. election. The debate highlights Beijing’s continued grappling with how to respond to the Trump administration without driving the relationship closer to collapse.” (WALL STREET JOURNAL)
Let It Snow: “Moves to accelerate digitization in the wake of coronavirus lockdowns are forcing businesses to manage a swelling tidal wave of data. Last week, startup Snowflake Inc. rode that wave to become Silicon Valley’s hottest export. Shares in the San Mateo, Calif., company, whose software helps enterprises rapidly analyze business information, closed Wednesday at $254 a share, more than double the initial public offering price.” (WALL STREET JOURNAL)
The Global Times, a newspaper run by China’s Communist Party, criticized the TikTok agreement announced by Oracle and Walmart “as an unfair deal that caters to Washington’s demands.”
The Department of Justice could move forward on its plan to bring an antitrust lawsuit against Google as early as next week.
Green Monday Holdings, Asia’s potential answer to Beyond Meat, has raised $70 million from investors; it produces plant-based pork substitutes and operates a chain of vegetarian-focus retail outlets and cafes.
Pure Watercraft is trying to use electric vehicle technology to replaced gas motors on boats, and it just raised $23.4 million to do so.
ICEYE, a radar satellite startup out of Finland, has raised $87 million in Series C financing, bringing its total funding to $152 million since its founding in 2014.
“Facebook warned that it may have to pull its main service and Instagram from the European Union due to a preliminary order barring its ability to store European user data on U.S. servers.”
“Apple CEO Tim Cook said in an interview on Monday with The Atlantic’s editor-in-chief Jeffrey Goldberg that he thinks major companies ‘deserve scrutiny,’ but that antitrust investigations into Apple should be dropped.”
Trian Fund Management has upped its stake in Comcast as part of an activist effort to force change in what it sees as an undervalued company.
Brookfield Properties, one of the biggest real estate owners in the country, is laying off a significant number of employees as the Covid-19 pandemic continues to wreak havoc on the commercial real estate business.