Tuesday 27/10/20

  1. In MARKETS & CORONAVIRUS TRENDS, US and European markets weaken and we see how Lockdown 2.0 could highlight different winners
  2. In FINTECH & TECH NEWS, Ant Group aims to raise $34bn, Facebook moves into cloud-based gaming and SAP takes short term pain for long term gain
  3. In INDIVIDUAL COMPANY NEWS, Dunkin’ talks to an acquiror, DHL hires more staff and The Hut Group ups its sales forecasts
  4. AND FINALLY, I bring you some sleep guidance…



So markets weaken and Lockdown 2.0 winners may be different…

US and European markets dip as Covid containment efforts founder (The Guardian, Jasper Jolly) highlights US and European stock market weakness as new restrictions are rolled out across Europe to combat the rising number of cases whilst uncertainty over a potential US stimulus package and the impending US presidential election took their toll. It seems that summer optimism, powered by the reopening of economies, has been replaced by concern once more as the potential reality of a second wave hits. This seems to me like volatility going into the final straights of a US election rather than anything else.

The big winners of Lockdown 2.0 will be very different (Daily Telegraph, Matthew Lynn) is a really interesting article which breezes through the winners of Lockdown 1.0 (Apple, Google, Zoom and Netflix among others) but then suggests that the winners of the next lockdown will be different because tech is losing momentum (Netflix subscriber numbers have been slowing down and stellar gains by tech more generally are arguably unsustainable), consumers are embracing familiarity, comfort and more cleanliness(just look at strong results from the likes of

comfort-brand stalwarts like Nestlé, Unilever, Procter & Gamble and Reckitt Benckiser) and because businesses are adapting to the changing environment. Most recently, investment banks have been posting very strong figures (mainly down to trading and investment banking revenues) and publicly-traded restaurant stocks like Domino’s and Chipotle have hit record highs because they have switched their respective business models to doing more take-outs and slimming down their menus. * SO WHAT? * The main argument here is that Big Tech won’t be the only winners in Lockdown 2.0. I think that this is true to an extent but that a lot of future success will depend on the length and depth of Lockdown 2.0. I am not convinced that restaurants, for instance, can continue to survive on take-outs. If unemployment increases, I would have thought that take-outs should decline because they are a luxury IMO. Do you, for instance, spend £30 on a Domino’s pizza for two plus a few sides or do you put that towards your food bill and buy one for £4 from your supermarket and make do? Also, if everyone is doing take-out, the competition is just increasing – which potentially dilutes any gains that are there to be had. I think that companies are doing all they can to survive and although some of this pivoting is working right now, it is not always going to be sustainable. I think that Big Tech will continue to be the dominant force under lockdown by far, but growth rates will be slower.



Ant Group aims high, Facebook moves into cloud-based gaming and SAP has to play the long game…

China’s Ant Group to raise more than $34bn in record IPO (Financial Times, Hudson Lockett) shows that the fintech giant is aiming to raise over $34bn in its upcoming dual listing in Shanghai and Hong Kong in what will be the largest amount of money ever raised in an IPO, eclipsing even that of Saudi Aramco last year. It is expected to list on November 5th. * SO WHAT? * The pricing values Ant Group at around $313bn, which makes it roughly equal in size to JP Morgan Chase. Ant IPO: earth-shaking arthropod (Financial Times, Lex) says that although these numbers are impressive, the valuation is not excessive because there are risks in future over more regulation stifling some of the innovations that have brought the company to this point. Also, an increased crackdown on Chinese tech companies around the world (especially in the US and India) could stifle its progress. In the short term, however, things like the Singles Day shopping festival will continue to power its revenues.

Meanwhile, Facebook moves into cloud gaming (Wall Street Journal, Sarah E. Needleman) shows that the social media giant is the latest Big Tech company to signal its move into the future of gaming. It will be adding streaming to its Facebook Gaming platform for free – in contrast to the subscription-based model preferred by rivals such as Google (Stadia) and Microsoft (xCloud). The six games will be available for players to stream in some parts of the US initially but Facebook added that there will be more games accessible in more regions as time goes on. * SO WHAT? * More established “players” in this genre include Sony’s Playstation Now (with 2.2m paid subscribers) and Nvidia’s GeForce Now (4m registered users, which includes free and

paid subscribers) show that there is appetite for this kind of thing even though the tech is arguably not quite up to it at the moment. I think that once 5G properly kicks in, however, this will really take off as it will mean that you will get a good quality gaming experience on any device. I think that cloud-based gaming is an important development for Facebook as it will be another way of getting more people to spend longer on its website – something that is, and will continue to be, key to growing its advertising revenues.

Staying with Facebook but moving on from one type of gaming to another (politics!), Campaigns rush to submit Facebook ads ahead of limits (Wall Street Journal, Emily Glazer, Patience Haggin and Alexandra) shows that both Republican and Democratic political advertisers raced to submit their ads to Facebook before the end of Monday after Facebook decided not to allow any new political ads in the week leading up to Election Day – a move designed to limit misinformation that could lead to rioting. This won’t stop advertisers from moving onto other platforms and influencers, however! The bun-fight always intensifies in the closing stages as political campaigns raise and spend a lot of money during this time.

Meanwhile, SAP shares drop as software maker cuts forecasts (Financial Times, Joe Miller) shows that Europe’s largest software company slashed its revenue and profits forecasts for the year due to Covid prompting companies to rein in their spending. The company’s share price fell by a chunky 22% yesterday as a result but SAP: cloud busting (Financial Times, Lex) suggests that the SAP’s transformation from a licensing-based model to a cloud-based model will take time and money to execute properly, so it must take some short term pain to make long term gains.



Dunkin’ talks excite, DHL commits to more staff and The Hut Group ups its forecasts…

In other news doing the rounds today, Dunkin’ Brands in talks to be acquired by Arby’s parent (Wall Street Journal, Dave Sebastian) shows that Dunkin’ Brands Group, the parent company of Dunkin’ Donuts and Baskin-Robbins, is in early talks to be taken private by Inspire Brands, which owns brands such as Arby’s, Buffalo Wild Wings and Jimmy John’s. * SO WHAT? * Shares in Dunkin’ rose by 15% on the news although nothing’s been finalised – but this latest development does provide a ray of hope for a Dunkin’, which has had a tough time under lockdown and recently announced the closure of about 800 locations in the US.

Elsewhere, there’s good news in DHL hires 10,000 workers as it prepares for record Christmas season (Financial Times, Joe Miller) as the German delivery company said it hired more additional workers in the run-up to Christmas in anticipation of the continued boom in online shopping. The company expects this period, which encompasses Black

Monday and Cyber Monday, to see deliveries boosted by over 50% versus last year and has invested €1bn in extra capacity. Growth in delivery companies continues!

Then in Hut Group is hot property after rapid rise in sales forecasts (The Times, Alex Ralph and Tom Ball) we see that THG raised its forecast for annual sales yesterday after only floating on the stock market last month! The company announced this upgrade due to Q3 revenues rising by 38.6% year-on-year. * SO WHAT? * Despite the company’s share price rising from £5 at its flotation last month to over £6.94 yesterday, it has come under criticism for shortfalls in corporate governance best practices – including having the founder Matthew Moulding in both the chief exec and exec chairman roles. This actually held it back from listing on the FTSE100 even though its valuation would have guaranteed it entry. However, it sounds like these concerns are being addressed by announcing the appointment of independent special advisers to its board committee as well as the future appointment of non-executive directors. If this goes ahead and Matthew Moulding agrees to release his grip slightly, an entry into the FTSE100 would make the company’s share price shoot up again as more funds would have to buy it.



…in other news…

I thought I’d leave you today with a guide about something that is very dear to me in Exact time you need to go to bed to not feel tired – based on when you have to get up (The Mirror, Zoe Forsey). Unfortunately, it does not tell me when I need to go to bed given I get up at 4am every day to write Watson’s Daily!

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Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)