Weekly Innovation Review (WIRE) #29

Latest News from the World's Leading Innovators

Huge earnings week this week, with particularly impressive results from Shopify (SHOP), Google (GOOG), Facebook (FB) and Apple (AAPL). A full breakdown of the earnings highlights at the very bottom of WIRE.

Let’s get into some of the key developments.

Headline Developments

Amazon’s (AMZN) Blue Origin has submitted a 175-page protest following NASA’s decision to award SpaceX the Human Landing System (HLS) contract last week.  In the submission, Blue Origin claims NASA’s decision ”eliminates opportunities for competition, significantly narrows the supply base, and not only delays but also endangers America’s return to the Moon”.  Blue Origin claims that they had little time to prepare a revised proposal after Congress' funding shortfalls forced them to opt for the more affordable SpaceX proposal.  Musk (below) didn’t show much sympathy!

Morris Chang, the 89-year-old founder of Taiwan Semiconductor (TSMC), the world’s largest chip maker, has said China is still 5 years behind in their chip development despite tens of billions in subsidies handed out to the industry on the mainland. At the same time, Mr Chang took a swipe at Intel (INTC), noting the irony of the company entering contract chip-making now after turning down an opportunity to invest in TSM more than three decades ago. Chang said Intel turned him down for funding back in 1985.

Meanwhile, Apple (AAPL) which released a suite of new products on their in-house designed (and TSM manufactured) M1 chip is reported to be on the cusp of mass-producing the M2 (or M1X) chip, on an improved 5nm process offering 15% speed improvement and 30% reduction in power.

Other Developments

Mastercard (MA) will be collaborating with crypto exchange Gemini (private) to deliver the first crypto-rewards credit card.  Users of the card will receive up to 3% in bitcoin or other cryptocurrencies on their purchases.  This is the start of what is likely to be a surge in product development around crypto, with companies like Visa, Paypal, Square and others leading in the development of various crypto payment solutions.

Ford (F) will open a $185m R&D battery lab to develop and manufacture battery cells, laying the groundwork for a more vertically integrated EV supply chain.  The facility is expected to open at the end of 2022 with a focus on next-generation lithium and solid-state batteries.  I don’t expect this to see a material shift away from their current supplier SK Innovation any time soon, however, it is a further sign of auto-makers trying to shift their dependence from a handful of Asian battery suppliers which also includes Panasonic (6752.JP), LG Chem (051910.KS), Samsung SDI (006400.KS) and China’s CATL.

Lyft (LYFT) are following Uber’s lead in selling their cost-intensive AV division.  Under the deal, Lyft’s ‘Level 5’ will be sold to Toyota (7203.JP) for $550m, with $220m payable now and the balance paid over five years.  The business will fall under the umbrella of Toyota’s ‘Woven Planet’ which has a core focus on autonomous vehicle technology.  As you can see in the AV map (top right, below), such a deal with Lyft will overlap considerably with existing investments from the auto-maker in companies like DiDi, Grab and Pony.ai.

Honda (7267.JP) is killing off the combustion engine.  The Japanese automaker says they will gradually phase out production of the incumbent technology with 40% of passenger vehicle sales expected to be battery-electric and fuel-cell vehicles by 2030, rising to 80% in 2035 and 100% in 2040.  This follows similar promises by General Motors (GM), Ford (F), Volkswagen (VOW3.DE) and Geely’s (175.HK) Volvo in recent months.  Honda has also committed to carbon neutrality by 2050.

Jidu Auto (private), an EV venture launched by Baidu (BIDU) and Geely (175.HK) in January, is planning to invest $7.7b into autonomous vehicle tech over the next five years, with the first EV planned to roll off production lines in three years.  After the first launch, the company is hoping to release a new model every 1-1.5 years.  Despite China’s considerable market size, Jidu will face considerable competition from dozens of domestic auto-makers including BYD, SAIC, NIO, Xpeng, Li Auto and Byton (not to mention the international competitors).

China’s Envision Group (private) have unveiled a new EV charging robot called Mochi, with the device to be available for purchase from June.  The device, which operates on Envision’s operating system EnOS will be able to charge EVs in two hours for a distance of up to 600kms.  So, hypothetically, you’ll be able to park at the shopping centre and summon the Envision robot to come and recharge your car while you’re away.

General Motors (GM) announced its charging strategy - to ensure customers have a seamless charging experience at home and on the road.  Under the ‘Ultium Charge 360 plan’ GM has signed agreements with seven third-party charging network providers including Blink (BLNK), Chargepoint (CHPT), EV Connect (private), EVgo (private), FLO (private), Greenlots (private) and SemaConnect (private).  Using GM’s software, drivers will be connected to over 60,000 charging points nationally seeing location and use data throughout the US and Canada.

Airbus (AIR.PA) is partnering with LiDAR developer Luminar (LAZR) to test how LiDAR can be used to enhance perception and sensing technology and ultimately enable safe, autonomous flight.  In particular, the technology is earmarked for Helicopter safety through Airbus’ helicopter Flightlab.  When combined with various other technologies (i.e. fly-by-wire, head-worn display) it is hoped that the system will help manage route preparation and navigation and auto take-off and landing.

NASA’s Perseverance rover has succeeded in converting carbon dioxide in Mars’ atmosphere into breathable oxygen.  This was made possible through an instrument called MOXIE (Mars Oxygen In-Situ Resource Utilisation Experiment) which, in one hour, produced 6 grams of oxygen - enough to sustain an astronaut for 10 minutes.  However, oxygen is also needed to fire rockets.  According to the Mars Exploration Program lead, getting four astronauts off Mars would require ~27.5 tons of oxygen (to burn the fuel) whilst keeping those astronauts breathing for a year would require ~1 ton.  If the maths is right, running this 24/7 for a year (at the target 10g/hour) would gain 100 days of oxygen for 1 astronaut (so 4 astronauts for one year would require a system ~15x larger (or 24x if you include the oxygen for a 7-month return trip to Earth - excluding the ~27.5 tones required for liftoff).  All in all, this means a future MOXIE around >100x the size of the current prototype, which would ‘only’ weigh as much as a Tesla Model 3.

No, it’s not the last supper, it’s Zoom’s (ZM) new Immersive View, which builds on the virtual background feature by placing meeting attendees in a realistic-looking location like a board-room or auditorium.  This is a product update that has been in the pipeline for a while and follows Microsoft’s (MSFT) Together Mode in optimising online engagement.

IPOs | SPACs

The digital banks are coming to market!

HK FinTech WeLab (private) is aiming for a $2b IPO later this year according to a report from Nikkei.  The company has ~50m users across three core markets - Hong-Kong with WeLend (online consumer credit) and WeLab Bank (digital bank), China with WeLab Digital (loan facilitation), Taoxinji (electronics leading) and Tianmian (B2B credit technology), and finally Indonesia with Maucash (consumer credit).

Meanwhile, Brazilian digital bank Nubank (private), backed by Tencent (700.HK) and Goldman Sachs (GS) is preparing for a US listing this year, according to Reuters.  Since founding in 2013, the company has gone on to amass 35m clients, making it one of (if not the) biggest digital bank in the world, surpassing US-based Chime’s 25m and UK-based Revolut’s est 15m.  In January the company’s valuation tipped $25b after a $400m cap raise.

Popular mapping API Mapbox (private), used by the likes of Snapchat, The Weather Channel and DoorDash, is planning to go public via a SPAC, valuing the business at ~$2b.  The company recently announced a new product, Dash (below), which enables carmakers to customise mapping experiences for consumers, putting it on the same trajectory as TomTom (TOM2.AS) who have evolved to be the ‘open’ AV mapping platform of choice for the likes of Denso, Nvidia and Toyota.

Alphawave IP (private), a Canadian company that develops advanced semiconductor solutions, is setting its sights on a UK listing, with a target valuation of ~$4.5b.  The company’s wired connectivity technology is embedded in leading-edge semiconductors used to power data centres, AI, 5G wireless infrastructure etc.  They are focused on 7-5nm processes at present, however, are advancing solutions for next-generation processes in the 4 and 3nm space.  For 2020, the company generated $44m in revenue and $16m in profit.  Certainly, a good one to keep an eye on!

Zymergen (ZY), a US company that produces a range of products from the molecule level up (what they call “biofacturing”), listed on the Nasdaq last week, currently trading 46% above its $31 issue price and valuing the business at $4.5b.  In similar fashion to lab-grown meat, Zymergen plans to create biomolecules in fermentation vats, starting with “Hyaline” - an optical film product currently under qualification with potential customers.  The company is also exploring 10 other products (3 in electronics, 4 in consumer care and 3 in agriculture).

M&A | Cap Raise | Earnings 

A big funding week for US challenger banks with Current (private) raising $220m from Andreessen Horowitz, Tiger Global and Wellington Management and Step (private) raising $100m from Stripe (private) and a bunch of A-listers including Will Smith, Stephen Curry, Jared Leto, The Chainsmokers and former Disney Chairman and Dreamworks founder Jeffrey Katzenberg.  Step is a teen-focussed card that is unlocked with approval of a parent, offering most of the features of other challenger banks with much more of a financial literacy tilt.  Current meanwhile offers more traditional challenger bank features, however, is quickly expanding into Step’s target market offering their own teen banking service.

Now, let’s dive into some of the key highlights from a big earnings week.  This is in order from great (😃😃) to good (😃), to so-so (🤷‍♂️) and to poor (😫).

  • Shopify (SHOP):  😀😀  The tearaway winner in my view.  Revenue of $988b - 15% above estimates, and 110% higher than the same period last year!  Earnings came in at $2.01/share - triple street forecasts.  Near term ambitions are to grow out the Shopify payments platform whilst having a more ambitious focus on growing the Shopify Fulfilment Network, the latter being a transformative initiative for the group.

  • Google (GOOG): 😀😀 Revenue of $55b - 7% above estimates.  Earnings of $26.29/share - 66% above estimates.  Led by a 46% YoY surge in cloud revenue, and a 32% YoY surge in ad revenue (although last year was a pretty low-base for ad revenues!).  YouTube usage now 81% of US adults vs 73% in 2019.

  • Facebook (FB):  😀😀 Smashes past expectations with Revenue of $26b - 10% above estimates and earnings of $3.30/share - 40% above estimates.  Much of this was attributed to a 30% You increase in the average price per ad and a 12% increase in the number of ads delivered.  The company counts 3.45b MAUs across its apps (vs 3.3b in the previous quarter).  Facebook’s Marketplace has more than 1 billion MAUs.

  • Apple (AAPL):  😀😀 Revenue of $89.5b - 16% above estimates.  Earnings of $1.40/share - 40% above estimates.    Stronger than expected demand on the back of surging Mac sales (up 70%) and iPad sales (up 79%) with first-time buyers a nudge under 50% in the US and around two-thirds in China.  Gross Margins, usually in the 38-39% range were up to 42.5%.

  • Tesla (TSLA): 😀 Revenue of $10.39b for the quarter - in-line.  Earnings of 93c - 17% above estimates.  Vehicle deliveries of 184,800 beat expectations, with supply chain issues to remain throughout the year.

  • Snap (SNAP): 😀 Revenue of $770m - 3.5% above estimates.  Earnings flat vs a forecast 6c/share loss.  Marginal beat on Daily Active Users (DAUs) and ARPU.  Importantly, it was also the company’s first-quarter of positive free cash flow ($126m).  Outside of earnings, Snap also announced the acquisition of Fit Analytics (private) a fitting technology startup to amplify their e-commerce offering as well as Pixel8 (private) a company which maps the world in 3D

  • Advanced Micro Devices (AMD):  😀 Revenue of $3.5b - 10% above estimates.  Earnings of 52c/share - 18% above estimates.  Computing and graphics (Ryzen) saw revenues up 46% YoY whilst Enterprise (EPYC processors) jumped 286% YoY.

  • Pinterest (PINS): 🤷‍♂️ Revenue of $485m - a touch above estimates.  Earnings of 11c/share - 57% above estimates.  However, despite a good earnings beat, many investors were dissatisfied due to a 30% YoY growth in MAUs (vs 37-39% in prior quarters) and a drop in ARPU (from $5.94/US user in 4Q20 to $3.99/US user in 1Q21).  The reason?  People are getting out of lockdown and we’re slowly going back to pre-covid screen-time / active user levels.  Meanwhile, the company continues to expand their social commerce feature (to countries like Australia) which will progressively increase that US and International ARPU over the coming years.

  • Microsoft (MSFT):  🤷‍♂️ Revenue of $41.7b was in-line whilst earnings of $1.95/share were 10% above estimates.  Like Google, much of this was led by cloud, with Azure growing 50% YoY.

  • Spotify (SPOT): 😫 Stock was off 12% after MAUs of 356m came in “modestly below” Spotify’s expectations and below the street’s expectations of 360m.  Financially, it met Revenue expectations and showed a marginal profit (but nowhere near impressive enough compared to other tech companies this quarter!).

Have a great week.

Charlie

LinkedIn or E-Mail (cnave@granitebaycap.com)


Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity. Any views expressed in this article are those of the author(s) and do not constitute financial advice.