Headline Developments
Apple (AAPL) and Goldman Sachs (GS) are reportedly partnering to launch a buy now, pay later (BNPL) service through Apple Pay, according to Bloomberg. The service will reportedly allow users to spread payments of their purchases across four interest-free payments every two weeks, or across several months with interest. According to the report, users who want to use the “Apple Pay Later” feature will need to be approved via an application submitted through the iPhone’s wallet app, where they will also be able to manage their payments. Following the news, BNPL peers Affirm (AFRM) and Afterpay (APT.AU) dropped 10.5% and 8.5% respectively on the news.
Meanwhile, PayPal (PYPL) Australia launched their new BNPL offering “PayPal in 4” (below right), offering no late fees. According to research by PayPal, almost all shoppers in Australia are aware of BNPL, however, 55 per cent have not used the service, predominantly due to fee concerns. PayPal’s offering splits purchases between $30 and $1,500 into 4 interest-free payments consisting of an initial down-payment and 3 fortnightly instalments.
India’s Reserve Bank has indefinitely barred Mastercard (MA) from issuing new debit, credit or prepaid cards to domestic customers from 22nd July due to non-compliance with “the directions on Storage of Payment System Data” which says all system providers (like Mastercard) must ensure that within a six month period (from April-2018) the entire data (full end-to-end transaction detail, information collected, carried, processed as part of the message, payment instruction) related to payment systems operated by them is stored in a system only in India. Indian regulators have a history of enforcing seemingly kneejerk policy (i.e. a number of years ago India whacked Vodafone with a $3.5b bill for taxes relating to a new tax law they decided to enforce retrospectively!). Without knowing the full details, this appears like another Vodafone situation, with India enforcing policy without proper consultation and foresight, to the ultimate detriment of the domestic financial system, foreign investment and innovation.
Lightyear One, a Dutch-made solar electric vehicle (below), has set a record for the longest drive on a single charge - travelling for almost nine hours, at 85km/h over a distance of 710kms. This was achieved on 60kWh of energy vs the 2021 Tesla Model 3 Long Range which gets 455km on a 70kWh battery capacity. The five solar panels on the Lightyear One add 12kms of range per hour of charging. The foundation for Lightyear One was laid during the Bridgestone World Solar Challenge - a 3,000km race across the Australian Outback.
The EU has fined BMW (BMW.DE) and Volkswagen (VOW3.DE) $1b after finding the auto conglomerates illegally colluded (with Daimler) to restrict competition in emission cleaning for new diesel passenger cars, essentially slowing the deployment of cleaner emissions tech. EVP of the EU Commission Margrethe Vestager said in a statement that “competition and innovation on managing car pollution are essential for Europe to meet our ambitious Green Deal objectives. And this decision shows that we will not hesitate to take action against all forms of cartel conduct putting in jeopardy this goal”. Daimler avoided an $861m fine for divulging details to the EU.
Other Developments
British Police have seized record hauls of crypto totalling $408m as part of an investigation into money laundering. According to the police “while cash still remains king in the criminal world, as digital platforms develop we’re increasingly seeing organised criminals using cryptocurrency to launder their dirty money”.
Amazon (AMZN) has acquired Facebook’s (FB) team of satellite hardware and software engineers (and relevant IP) to bolster its 500-strong Project Kuiper team. The project ultimately aims to send 3,236 satellites into Low Earth Orbit (LEO), offering high-speed broadband to consumers across the globe. It’s easy to see how such a constellation, when integrated with AWS, Amazon Prime and other services, helps close the loop on Amazon’s already dominant market position, and further enhance the organisation's network effect and economy of scale.
Masten Space Systems (private), which is aiming to send a lander to the moon in a couple of years, is developing a lunar navigation and position system similar to GPS on earth. This will be the first “off earth” navigational system and will be a significant enabler for future missions, helping to “lower spacecraft costs….increase payload capacity and improve landing accuracy” according to Masten’s VP of R&D Matthew Kuhns.
Players can now purchase a LeBron James skin for Fortnite, having the option to select the regular LeBron or the Space Jam LeBron - promoting the upcoming flick “Space Jam: A New Legacy”. The two skins are each equipped with the signature Nike LeBron 19 with the King James Gear Bundle including a Lion Pickaxe, Wingspan Glider and LeBron’s on-court-celebration “The Silencer”. This is yet another example of the compelling value proposition for celebrities and brands in leveraging metaverse platforms like Fortnite and Roblox (RBLX) for amplified brand presence and acquisition (and for the metaverse providers - substantial upside from future ad revenues). Note - Tencent (700.HK) owns 40% of Fortnite developer Epic Games.
Discovery (DISCA) - home of the Olympics in Europe - are making the most out of a bad situation, introducing ‘’Cube’’ technology to bring viewers (and the media) closer to Olympic athletes (pundits and experts) who will be brought into the studios live via a hologram (below). The studio contains seven different 360-degree locations on the set with effects to recreate the outdoor conditions on the ground in Tokyo, all using gaming technology such as the Unreal Engine, developed by Epic Games.
Tencent Music (TME) will be asked by Chinese regulators to give up exclusive rights to music labels, according to Reuters. The move follows a suite of clampdowns by regulators who are trying to rein in the dominance of Chinese big tech and keep them in line with CCP policy. In this specific instance, the move by regulators has been predicted for some time, with Tencent Music currently having exclusive rights to broker licensing deals for the catalogues of Universal, Warner and Sony in China - meaning it can sub-license the catalogue to guys like Alibaba, NetEase, ByteDance and a range of smaller participants. Note that TMW owns 8.7% of Spotify (SPOT), which in turn owns 8.3% of TME. Contrary to the below diagram from TME, they also own ~10% in Universal Music which Vivendi (VIV.PA) are listing in Europe in September.
A team of academics from the US and Canada have, for the first time, measured the true extent of China’s Great Firewall. In a 9-month project which concluded in December 2020, researchers developed a system called GFWatch to measure how China’s firewall would tamper with domain connections. Under the program, researchers tested 534 million unique domains, accessing around 411 million domains on a daily basis to check that the blocks were persistent. The findings discovered that 311,000 domains are blocked (270k blocked intentionally, and 41k blocked unintentionally). Of the blocked domains, 40% were newly registered, with researchers concluding that new sites are blocked by default until authorised by regulators. Aside from new domains, the most restricted sites (below) are within business, pornography and IT-related ‘sectors’.
Walmart (WMT) extended its relationship with industrial automation startup Symbotic (private) to bring robotics to 25 regional distribution centres. The deal follows an (obviously) successful pilot which kicked off back in 2017 to improve freight sorting, stocking and unloading. According to the company’s website, their inbound cells have the world’s fastest palletisation speeds, allowing for the processing of 1,700 cases per cell per hour.
IPOs | SPACs
Payments giant Stripe (private) has been a bit of an anomaly for an (Irish) US-tech company, scaling to ~$8bn, all whilst avoiding the scrutiny and transparency that comes with being a public company. Well, that looks like it’s about to change, with the company taking its first major step towards Wall Street, hiring law firms to help with what will likely be a direct listing. The company was last valued at just shy of $100b in March this year with timing likely to see the company hit markets early next year.
Circle (private), the creator and principal operator of the USDC stablecoin, has agreed to merge with Concord Acquisition Corp (CND), valuing the company at $4.5b. According to the investor presentation, Circle operates a suite of financial services including the core market infrastructure for USDC, a comprehensive suite of payments and treasury services and a two-sided marketplace for issuers and investors. Furthermore, the company’s APIs provide a range of offerings relating to accounts, payments, payouts and yield which benefit a number of organisations like Visa, Coinbase, FTX and Dapper Labs (which powers NFTs for the NBA and UFC). Meanwhile, Circle subsidiary SeedInvest is on a separate mission to “democratise” startup investment with a two-sided marketplace for investing in private companies. The fun thing about SPACs is seeing the company’s ambitious growth rates. Below, you’ll see they’re targeting 185% CAGR from 2021 to 2023, with 10% (and eventually 35%) EBITDA margins!
Brazil’s VTEX (private), an e-commerce platform in a similar mold to Shopify, is looking at an IPO on the NYSE, valuing the business at $3.2 billion. VTEX, which expanded into North America in 2017, allows customers to execute their commerce strategy with online stores and order management. The company reported revenue of $25.9m for 1Q21 (up 56% YoY), so if you assume a conservative $120m 2021 revenue the implied P/S is 26x (vs ~42x for Shopify and 22x for BigCommerce). The immediate reaction here is that Shopify is tremendously expensive, however, the economies of scale they achieve before even factoring in synergies from fulfilment (below), means they’ll always trade at a premium to “peers”.
Couchbase (BASE) will start trading on 22nd July after pricing its IPO at $20-$23/share (and selling 7m shares), putting a valuation on the company at around $900m. The company, whose closest competitor is MongoDB (MDB) - as well as Oracle, IBM, Microsoft and Amazon - offers a modern cloud database for organisations like Carnival, Emirates, Intuit, Avis and Infosys. Revenues came in at $103m for 2021 (Jan year-end), up 24% YoY, with Opex ~1.2x revenues and Gross Margins ~90%. Comparatively, MongoDB saw revenues rise 40% over the same period to $590m, with Opex ~1x sales and Gross Margins around 70%.
Geely (175.HK) subsidiary Volvo (private) has lifted its stake in EV company Polstar (private) to 49.5% ahead of a likely merger (of Polestar) with SPAC Gores Guggenheim (GGPI). This also comes at a time where Geely has been looking to put Volvo back in public hands, eyeing off an IPO of the Swedish OEM towards the end of the year. Polestar produces two electric performance cars in China - a plug-in hybrid coupe, Polestar 1 (below), and a full-electric Polestar 2.
Finally, Markforged (MKFG), creator of the integrated metal and carbon fibre additive manufacturing platform - The Digital Forge - has completed its SPAC merger and is now trading on the NYSE.
M&A | Cap Raise | Earnings
One day after sending Richard Branson to space, Virgin Galactic (SPCE) announced its plans to raise $500m via a share sale, sending the stock down as much as 14%. Proceeds from the sale are for “general corporate purposes, including working capital, general and administrative matters and capital expenditures for its manufacturing capabilities, development of its spacecraft fleet and other infrastructure improvements”. Ultimately, Virgin aims to have 400 flights every year, which would pull in $400m in revenues based on 4 passengers per flight at $250k/seat. According to street forecasts (CapIQ), that revenue target will be hit from 2024-2025 (which puts the company on ~22x EV/Sales for 2025).
Some good news and bad news for Tencent (700.HK) on the M&A front this week. Starting with the good, regulators approved the company’s $3.5b acquisition of China’s third-biggest search engine, Sogou (SOGO), seeing Tencent buying the remaining 60% of the company it doesn’t already own. The bad news? Regulators blocked Tencent’s plan to merge the country’s top two video streaming sites Huya (HUYA) and DouYu (DOYU) on antitrust grounds. The two companies, in which Tencent owns 39% and 37% respectively, would have a market share of over 70% according to regulators; and would give the conglomerate even more control over the gaming ecosystem which already includes Fortnite developer Epic Games (40% stake), League of Legends developer Riot Games (100%), PUBG developer Krafton (~15%), Ubisoft (5%), Activision Blizzard (5%) and Supercell (84.3%) - amongst many many other gaming investments.
Desktop Metal (DM) announced it has acquired Aerosint (private), a pioneer in multi-material deposition systems for power-based additive manufacturing (AM) solutions. According to the press release, the technology can be integrated into any powder-bed AM process such as laser powder bed fusion, binder jetting, high-speed sintering or selective laser sintering. This all means DM customers will now be able to churn out multi-material 3D printed products such as bi-material luxury goods, Radio Frequency components, wear-resistant cutting tools and molds with conformal cooling channels. It also rounds out a busy 2021 for DM (so far) which has seen them buy (or invest in) companies like Beacon Bio, Adaptive 3D Technologies, Shapeways and EnvisionTEC.
UK cybersecurity firm Avast (AVST.L) is in advanced talks over a merger with peer NortonLifeLock (NLOK) in what would be a cash and stock deal. Such a merger would round out Norton’s consumer cybersecurity products and create a market leader in a sector which is predominantly dominated by larger enterprise products like Crowdstrike (CRWD). Meanwhile, Cybereason (private), a US-Israeli cybersecurity startup that provides endpoint detection and response solutions, has raised $275m in Series F funding from a group of investors including Liberty Strategic (a VC fund founded by Steve Mnuchin, who served as US Treasury Secretary under Trump).
Swedish engineering (sensor/automation) leader, Hexagon AB (HEXA B.OM), has struck a deal to buy Infor’s (private) Enterprise Asset Management (EAM) business for $2.75b. The deal sees Hexagon paying $800m in cash and Infor parent Koch Industries (private) picking up 132.6m shares in Hexagon (equivalent to 4.9% of the company). In 2021, EAM pulled in $184m of revenues for Infor, implying a 15x P/S multiple for the unit (with growth of 35% over the past few years).
Toyota (7203.JP) subsidiary Woven Planet is acquiring US-based Carmera (private) - a provider of maps and data for driverless vehicles. The acquisition will give Toyota access to real-time, high definition maps and crowd-sourced inputs that are essential for autonomous vehicles to locate and navigate themselves, the companies said in a statement.
India’s online retail giant Flipkart (private) closed a $3.5b cap raise during the week, bringing the company’s valuation to ~$37.6b. The company, backed by majority-owner Walmart (WMT), will use the proceeds to expand its operations and invest further in its grocery, fashion and delivery service ahead of an imminent (and often rumoured) IPO. Walmart, Softbank (9984.JP), Canada’s CPP and Singapore’s GIC all participated in this latest round.
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.