Morning Financial News Summary, Day 1

Petr Holoubek
Aug 12, 2019 · 5 min read

Microsoft Aims to Reset Videogame-Streaming Market With ‘Ninja’ Pact

Microsoft begins to compete with Amazon’s Twitch in the videogame streaming market through its platform called Mixer. The most widely watched streamer Tyler “Ninja” Blevins, earlier this month, began playing games exclusively for Mixer.

Streaming is an increasingly important part of the $150 billion-a-year global videogame industry. Nonetheless, Mixer accounted only for 3% of 8.42B hours watched a year of videogame streams. On the other hand, Twitch, which was purchased by Amazon for $970 million in 2014, streamed about 505B minutes last year, up from 355B minutes in 2017.

Big Investors Leverage Their M&A Promises

In the U.K., the discouragement from break-up fees, companies started seeking promises from the largest shareholders of a target company. Such guarantees are known as “irrevocables.” Irrevocables mainly ask yes-vote in support of the takeover from the largest shareholders after the merger agreement has been struck but before it has been announced.

Invesco took advantage of the U.K. rules to help Boston Scientific Corp. to pursue a takeover bid for BTC PLC for $4B. Invesco pledged its 16% BTG stake and after two months sold half of the position to Pentwater Capital Management. As part of the share sale, Pentwater Capital had to promise to support the bid and not to sell until Boston finishes the takeover.

Delivery Guys Take a Bite Out of Domino’s

Domino’s Pizza, the self-branded world leader in pizza delivery, losses its competitive advantage due to the third-party delivery apps such as Grubhub. Domino’s share price is down by 15% (after the price doubled from 2016 to 2018) over the past year, and the company disappointed with same-store-sales of just 3% vs. expected 7%.

The benefit of third=party delivery for chain restaurants is still unproven.

Planet Fitness Must Come Down to Earth

The business valuation of Planet Fitness might prove too high in the future.

The business model relies on the increasing amount of customers who won’t attend the gym too frequently. The average membership per gym has grown to 7,500, yet a typical facility can host only on average 700 or so workout a day. The gym membership pricing, at $10 a month, and difficult canceling are factors that keep infrequent customers paying their dues. The company’s CFO stated that they don’t measure how many customers quit in their first year since sign up for the membership.

Planet Fitness makes money by keeping 7% (up from 5% in 2017) of membership fees paid to franchisees, and by selling & replacing franchisees equipment at 23% gross margin every five to seven years.

If Planet Fitness experiences a slowdown in traffic and new sign-ups (possibly because of recession), it will experience a slowdown in sales from equipment. In combination with an expensive valuation of 23 times projected enterprise value to EBITDA, the stock will plummet.

Apple Card Review: The Credit Card of the Future Is No Card At All

Apple incentivizes you to pay for items via Apple Pay over the Apple Card. If you have the card, you’ll get 2% cashback on your purchase using Apple Pay and 3% if you buy apps, movies, and devices from Apple. On the other hand, if you use the Apple Card and swipe for the purchases, you’ll get only 1% cashback.

UPS Bets on Amazon, for Now

UPS bets on a tighter relationship with Amazon as FedEx will stop delivering packages for the e-commerce giant. By some estimates, UPS already earns close to 10% of its revenue from Amazon.

On the other hand, FedEx will focus on filling the gap from Amazon, approximately $900 million in revenue, by focusing on other major retailers and medium to small companies. Business with smaller shippers usually has a higher profit margin because it lacks volume discounts.

Aramco, Setting Stage for IPO, Bulks Up on Refining With $15 Billion Deal

Saudi Arabian Oil Company, known as Aramco, diversifies its upstream crude oil-producing business into the downstream refining business by purchasing a 20% stake in India’s Reliance Industries’ oil and chemicals business. The investment is consistent with Aramco’s strategy to refine 8 to 10 million barrels a day. The current refining capacity stands at 4.9 million, or half of Saudi Arabia’s crude oil output. Aramco is conducting its first-ever earnings call later today.

EU Nears Decisions in Facebook Privacy Cases

The European Union is nearing the end in some of its 11 cases against Facebook under its new privacy law known as General Data Protection Regulation, or GDPR. Under the GDPR, the fines per case can equal up to 4% of Facebook’s prior-year worldwide revenue, or $2.23 billion.

The Federal Minimum Wage ‘Doesn’t Really Matter Anymore

The federal minimum wage becomes foreign labor policy because just 0.26% of the 156 million civilian workers earned the salary last year. The small fraction of the minimum wage-earning workforce is the product of pledges from major employers such as Walmart, McDonald’s, and Amazon to raise the minimum wage.

The Turn in the Yield Curve

Shorter-term bonds yields are above longer-term yields. The phenomenon known as an inverted yield curve reflects investors’ expectation that in the distant future, the economy will experience lower growth and inflation than what’s the current.

The yield curve typically inverted before recessions. However, investors disagree on whether inversion has a mechanical effect on the economy. In other words, whether it directly affects the economy by, for example, reduces the willingness of banks to lend or whether it merely reflects sentiment.

Investors Ponder Negative Bond Yields in the U.S.

Investors who believe the U.S. might get the negative interest rate is still a minority. Nonetheless, there’s more than $15T in government debt around the world with negative yields. In Europe and Japan, the subzero yields were brought by slow growth, low inflation, and central-bank stimulus.

Chinese Financial Institutions’ Lending Dives

Chinese lending plummeted due to the trade war with the U.S. and recent regulatory crackdown on shadow financing to property developers. UBS lowered its forecast for Chinese economic growth this year to 6.1% from 6.2%.

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