Headline Developments
Headline developments are all up in the air this week, starting with United Airlines (UAL) who have signed an agreement with Boom Supersonic (private) to add 15 of their $200m jets to the fleet, with the option of adding an additional 35, after certain safety, sustainability and operating metrics are met. Once operational, it will be the first large commercial aircraft to be net-zero carbon from day one, operating on 100% sustainable aviation fuel (SAF) - derived from ‘sustainable’ sources like algae, cooking oils and non-fossil CO2. You can read up on SAFs here. The new jets are also a hell of a lot faster than the current fleet, getting passengers to their destination in half the current time (i.e. NY to London in 3.5 hours).
Amazon (AMZN) founder Jeff Bezos is off to space, confirming that he and younger brother Mark will be passengers on New Shepard’s first crewed flight on 20th July. But you can also land a spot, with Blue Origin currently accepting bids from the public (the current bid is $3.8m!). The whole experience will last ~30-40 minutes, taking 5 minutes for the capsule to separate, at which point you’ll have ~4 minutes of weightlessness (100km up) followed by 25 minutes of descent. Following the first launch, tickets are expected to cost ~$250k - the same cost as a seat on Virgin’s Galactic (SPCE) which is targeting an early 2022 debut.
The biggest event of the week was Apple’s (AAPL) Worldwide Developer Conference (WWDC). Nothing overly remarkable, but we do see some good updates around UX, sharing and accessibility (i.e. home/auto). The most notable highlights include Facetime coming to Android and the SharePlay feature so you can watch sports/movies/games with friends on the other side of the world/country in-sync (thanks to Facetime integrating with Disney+, Hulu, ESPN, Twitch etc). There’s live text, which means you can take a photo of a recipe/billboard and then copy/paste/interact with that text (plus it will translate). Accessibility/ID features let you pass through airport security, open your front door and car, all from iOS. Finally, a UX overhaul of maps. There’s a heap more of course (including health, dev, media etc) which you can see in the below highlights reel:
How about that internet outage? On Tuesday morning, websites around the world went down including Reddit, Spotify, NY Times, Amazon, Pinterest and….Horse and Hound (some very disgruntled subscribers there I’m sure!). Why? Well, they are all customers of Fastly (FSLY) - a leading Content Delivery Network (CDN) that had a little software bug that morning! What is a CDN? Well, if you take the example of Horse and Hound (H&H), they (presumably) have a global readership and those readers want to see those articles pop up quickly. To achieve that, H&H relies on ‘edge’ or ‘Point of Presence (POP)’ servers around the world (a server closer to the end-user/readers) which stores the content locally (instead of pinging the origin server in the UK). Fastly’s global network of POPs can be seen below. Also, if traffic gets congested between edge servers then a CDN acts essentially as an air traffic controller, ensuring data is routed through the most efficient channels to those end customers.
Other Developments
Square (SQ) provided a couple of updates around crypto. Firstly, they announced an intention to create a physical (hardware) bitcoin wallet and, secondly, a small $5m investment to make a solar-powered bitcoin mining facility, in collaboration with Blockstream Mining. The aim here is to prove that crypto mining, at scale, can be sustainable. In a statement, Blockstream Mining says “we hope to show that a renewable mining facility in the real world is not only possible but also prove empirically that Bitcoin accelerates the world toward a sustainable future”.
It’s likely we see a similar move from Elon Musk as he flip-flops around on bitcoin. Tesla (TSLA) is one of the best-equipped companies to make bitcoin mining more sustainable, and that initial u-turn may just be a subtle ploy to show that Tesla is, in fact, the saviours of crypto (not the destroyers).
Now, let’s dive into some cryogenics!
Russian scientists have successfully resurrected a group of microscopic animals which have been frozen in the Siberian permafrost for 24,000 years. Not only did the organisms, called a bdelloid rotifer, survive, but they successfully produced offspring (through an asexual process called pathogenesis). One of the study scientists, Stas Malavin said this also presents an exceptional opportunity to investigate the basic foundations of long-term crypto preservation in human context. It won’t happen any time soon, but it does bring us a fraction of a per cent closer to those cryosleep scenes in Austin Powers, Avatar and 2001: A Space Odyssey!
The FDA has approved Biogen’s (BIIB) Alzheimer’s drug Aduhelm, causing the company’s share price to rocket nearly 40% in a day. This mark’s the FDA’s first approval of a new Alzheimer's drug in nearly 20 years. However, the approval isn’t without controversy with insignificant evidence that it actually has a meaningful impact! In defending the decision, the FDA’s top regulator said residual uncertainties surround the drug but it’s ability to reduce harmful clumps of plaque in the brain is expected to help slow dementia. There are estimated to be ~44m people with Alzheimer’s globally, with an average life expectancy of 4-8 years following diagnosis. This means the average “treatment” would cost $336k (over 6 years), with Medicare covering a bulk of that cost. In the US, with ~500k new cases of Alzheimer’s diagnosed each year, the TAM is ~$168b p/a for Biogen. Even if 5% of those cases take Aduhelm over their lifetime, it represents an $8.4b opportunity in that market alone.
Twitter (TWTR) is rumoured to be launching their “super follows” feature which will be enabled for accounts with more than 10,000 followers (and who post >25 times/month). In a nutshell, this will allow you to pay ($4.99/month in the example below) to follow certain accounts and get access to exclusive perks (badges, newsletters, deals etc). Similar features also make sense for companies like Instagram, Spotify (SPOT) and Pinterest (PINS).
Microstrategy (MSTR) is going cap in hand to raise an additional $400m (through senior secured notes) to buy more bitcoin. At present MSTR has 92,079 bitcoin purchased at an average price of ~$24,500 over the past 12 months. That’s at a time when the company is also looking to take more than a $285m impairment on its current holding following the recent correction. That’s about 78% of its equity base! Now, usually when you blow up a company balance sheet and go back to shareholders for more cash, it’s called “throwing good money in after bad”. Not so for Microstrategy CEO Michael Saylor whose legion of fans would likely call it inspired. Either way, if you’re buying Bitcoin, perhaps the direct route is preferable.
Another concern for MSTR is that crypto is becoming more widespread across traditional platforms. All major payment processors have adopted it or are in the process of adopting it and what we’re also seeing is leading broking platforms like Interactive Brokers (IBKR) looking to offer crypto trading services in their platform alongside stocks, options and other assets. So, any MSTR premium over bitcoin will be contracted whilst leaving you exposed to questionable accounting policies (i.e. a bitcoin proxy with a dodgy balance sheet).
This move from Microstrategy comes at a time when there is increased pressure on Bitcoin, with the latest 12% sell-off (which has been reversed as of writing!) catalysed by the DOJ successfully recovering $2.3m (63.7 bitcoins) of the $4.3m Darkside ransom relating to the recent Colonial Pipeline hack. According to the FBI, the DOJ’s Ransomware and Digital Extortion Task Force were able to recover a digital currency wallet that DarkSide hackers had used to collect the payment from Colonial.
Bosch (private) has opened a $1.2b chip plant in Germany to supply the ever-growing demand for semiconductors in the auto industry - one of its core industry verticals. The plant (it’s biggest ever single investment) will handle wafer fabrication before shipping these off to Asian partners for packing and assembly. The plant also sets a benchmark for data-driven manufacturing, becoming what’s known as an AIoT factory - combining Artificial Intelligence (AI) with Internet of Things (IoT) to provide continual data flow across the entire production line (comprising 100 machines and 300kms of data lines).
Honeywell (HON) is doubling down on quantum computing, merging their Honeywell Quantum Solutions (HQS) unit with Cambridge Quantum Computing (CQ). The deal is to combine Honeywell’s hardware expertise with CQ’s software capabilities to build what the companies call “the world’s highest-performing quantum computer and a full suite of quantum software, including the first and most advanced quantum operating system”.
Hats off as well to Honeywell for partnering with electric Vertical Takeoff and Landing (eVTOL) startup Lilium (QELL). Under a recent agreement, Honeywell will be supplying Lilium with its fly-by-wire system, a flight control component and the aircraft’s avionics system.
Fiat, owned by Chrysler, Jeep and Citroen parent Stellantis (STLA.BIT), is planning to go fully electric between 2025 and 2030, following companies like Honda (which is aiming to be fully electric by 2040). Fiat will also be transforming the track on the roof of the former Lingotto factory in Turin into the largest hanging garden in Europe.
The ride may be over for Lordstown (RIDE) after they announced a going concern notice. This notice, in their quarterly earnings, says the “current level of cash is not sufficient to fund commercial-scale production and the launch of sale of such vehicles” and that “these conditions raise substantial doubt regarding our ability to continue as a growing concern”.
IPOs | SPACs
Payments platform Marqeta (MQ) rallied 13% on debut today, closing at $30.52 from its IPO price of $27. The company power credit cards (physical, digital, tokenised) for some of the world’s biggest brands like Affirm, Klarna, DoorDash and Instacart. But it’s Square who drives a large portion of the revenue for Marqeta, accounting for 70% of Net Revenue for FY20 and 73% of Net Revenue for the March quarter this year. That’s quite a hefty reliance. Plus, the contract with Square is up in 2024 (for both Cash App and Square Card respectively). So, if Square develops card issuing technology in-house, then why would they continue to use Marqeta. That’s the big red flag.
American Neobank Dave (private) will hit the markets via a merger with VPC Impact Acquisition Holdings III (VPCC), giving it a valuation of ~$4bn. According to the investor presentation, the company pulled in $122m in revenues last year from 10m users, but have their sights set on 150m people who are living paycheck to paycheck and who they believe will benefit from a suite of products. These include insights to prevent overspending (nothing new), an ExtraCash feature to protect users from overdraft (which they claim has saved uses $1bn!) and finally, Side Hustle, a feature which connects users to the gig economy (and earn more cash). The company claims to be trading on a pro-forma 9.4x 2022e EV/Revenue vs peers (MoneyLion, SoFi, etoro, Square, Afterpay) at an average 13.9x (below). However, it’s not really fair to compare it to most of these! It’s not a BNPL, it’s certainly nowhere near as sophisticated as Square and it’s in a different ballpark completely to etoro (i.e. they don’t have an investment product…..yet). So, 10.5x seems like the more logical benchmark (MoneyLion / SoFi).
Singapore’s PropertyGuru (private) is considering merging with the Peter Thiel and Richard Li SPAC Bridgetown 2 Holdings (BTNB) according to Bloomberg. The report claims that a deal could be announced as soon as July and would likely value the business at $2bn. Launched in Singapore in 2007 as a property marketplace, the company has since expanded to encompass Malaysia, Vietnam and Thailand, offering a range of residential and commercial services (including financing and analytics). Growing GDP/capita and digital adoption in Southeast Asia will play right into the hands of companies like PropertyGuru; just as it has for Grab (pending listing), Tokopedia (private) and Sea Limited (SE), and will do for other industry verticals like Carsome (private) the leading integrated auto marketplace in the region.
Few details as yet, but there are reports that Solid Power (private), the solid-state battery company backed by BMW (BMW.DE), Ford (F) and leading battery supplier Samsung (005930.KS) is in talks to merge with Decarbonisation Plus 3 (DCRC), in a deal which would put the company on an EV of ~$1.3bn. Solid Power’s technology claims to provide 50% more energy density compared to incumbent batteries on market whilst also providing a simpler cell architecture and inherently safer battery (as they don’t deal with flammable liquid electrodes).
Fresh on the heels of Australia’s Tritium (DCRC) SPAC, it’s now Spain’s turn - planning to list it’s EV charging company Wallbox (private) on the NYSE via a merger with Kensington Capital Acquisition Corp (KCAC). The company, backed by Spanish energy giant Iberdrola (IBE.EU), will raise $300m from the deal, valuing the business at $1.5b. According to the investor presentation, the company has sold over 100k of the chargers, connecting over 150k public charging stations across 67 countries. Like Tritium, it produces DC-only public chargers (and software) but, like ChargePoint (CHPT), has spread its product offering across both commercial and residential applications (below).
M&A | Cap Raise | Earnings
Facebook (FB) has acquired Unit 2 Games (private) whose primary platform is Crayta - a Roblox (RBLX) style platform that allows users to create and publish games without coding. Crayta has only been around for one year, available exclusively on Google’s (GOOG) platform Stadia. According to Facebook’s Gaming VP Vivek Sharma “Crayta has maximized current cloud-streaming technology to make game creation more accessible and easy to use. We plan to integrate Crayta’s creation toolset into Facebook Gaming’s cloud platform to instantly deliver new experiences on Facebook”.
Australian-based electronics design platform Altium (ALI.AU) has rejected a US$3.9b takeover offer from design conglomerate Autodesk (ADSK). The offer of A$38.50 came at a whopping 32% premium to the last closing price but is still below last year’s highs of around $40 - perhaps a more logical starting point for Altium to consider opening up for further due diligence. You can see below that it’s also growing at a slightly faster rate than most (all) peers with sales expected to climb ~13% from 2021-22. This implies a forward P/S of over 18x (2x most peers!).
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.