Headline Developments
As has been widely expected, China has moved to greatly reduce the time under-18s spend playing computer games. Under the new rule, younger gamers will be restricted to one hour (8 pm - 9 pm) of online games on Fridays, weekends and holidays, with online gaming companies barred from providing gaming services to minors in any form outside of those hours. Previous rules had limited under-18 gaming to 1.5 hours per day (and to three hours on holidays). Tencent (700.HK) and Netease (9999.HK) dropped 3-3.5% on the news, however, in reality, such moves are more than priced in, with NetEase previously saying less than 1% of its revenue comes from minors.
Another expected regulatory action is likely to fall into place, with SEC Chair Gary Gensler saying that a ban on “payment for order flow” was on the table - a practice that sees retail firms like Robinhood (HOOD) and E-Trade (private) getting paid for trade flow from large trading operators, instead of charging client’s commission. That, and the fact that PayPal (PYPL) are exploring their own online broking service called ‘Invest at PayPal’, saw Robinhood shares come off 7% at the beginning of the week.
Separately, Robinhood announced that they would be releasing a new feature called “Early Direct Deposit” allowing users to get their salary direct-deposited up to two days early. This isn’t really a breakthrough but does show their product roadmap is aligning to leading digital banks. Early deposit features are already present within Square’s Cash App, PayPal’s Venmo and leading digital banks like Revolut (private) who offer ‘Early Salary’, SoFi’s (SOFI) ‘Early Packcheck’ and Chime’s ‘Early Direct Deposit’.
Other Developments
A great week for Affirm (AFRM), rallying over 40% after announcing a deal to partner with Amazon (AMZN). The deal will allow Amazon customers to break up purchases of $50 or more into smaller instalments (much like Affirm’s existing deal with Shopify called Shop Pay Installments). It also comes off the back of the Square acquisition of Afterpay, Apple’s BNPL collab with Goldman Sachs called “Apple Pay Later” and PayPal’s expansion of “Pay in 4”.
Indonesian online lender Kredivo (private), owned by Singaporean fintech FinAccel (pending listing), is planning to expand its BNPL service into Vietnam. According to FinAccel’s COO Valery Crottaz, “Vietnam came as a logical choice given the lower penetration of credit cards in the country and a rapidly growing middle class; the fast-growing e-commerce market”. But these qualities aren’t just unique to Vietnam, they’re unique to many nations in South East Asia like Indonesia, Malaysia, Thailand, Cambodia and the Philippines - all of whom are seeing a rapid rise in middle-class wealth, high technology adoption rates, coupled with a large ‘unbanked’ population (i.e. no bank accounts / no credit history). These, and many other factors, make the region a prime target for tech companies (fintech and e-commerce in particular).
Satellite communications company Globalstar (GSAT) jumped as much as 70% this week after reports emerged that Apple (AAPL) would be introducing satellite capabilities to its next generation of iPhones. According to Bloomberg, the first component of the technology called Emergency Message via Satellite will let users text emergency services and contacts over a satellite network when there’s no cell signal available. The second feature will be a tool to report major emergencies like vehicle crashes or fires. The reason Globalstar rallied is due to a previous communication from the company saying they had signed an agreement with an unidentified party to develop a new service (a disclosure some believe is related to Apple). That’s a big price move for such an assumption! Other stocks to keep an eye on here (without the massive price move) include AST Space Mobile (ASTS), Iridium (IRDM) and Viasat (VSAT).
Astra Space (ASTR), one of the many startups aiming to launch such satellites, dropped 20% after the company’s rocket failed to reach orbit in its first commercial launch. “We regret that we were unable to accomplish all mission objectives……..(and) will incorporate learnings from this test into future launch vehicles, including LV0007, which is currently in production” Astra CEO Chris Kemp said.
So, a bad week for Astra, but a great week for Rocket Lab (RKLB) who took a giant stride in its ambitions to be a vertically integrated rocket company - opening a new production facility to manufacture satellite components (reaction wheels, critical altitude and stability control systems). In fact, they expect to manufacture ~2,000 reaction wheels per annum, which would be used to build up at over 500 individual satellites each year.
A big win for AMD (ADM) with one of the world’s largest content delivery networks, Cloudflare (NET), announcing that they will continue using AMD’s Epyc server CPUs instead of Intel’s Xeon for its next generation of servers (which serve 25m HTTP request every second from servers in 200 cities)! According to Cloudflare, although Intel’s performance was on par, the power consumption and performance per watt was “unattractive”. The company notes that the new chips will provide 29% more performance over the last generation without sacrificing power.
SVOLT (private), a battery technology company spun out of Great Wall Motors (2333.HK), has unveiled what it calls the “world’s first cobalt-free battery pack to reach series production” and being successfully implemented in a Great Wall Motor’s ORA Cherry Cat EV (below). This is an important development as cobalt resources are very limited, with the majority mined in the DR of Congo. So there are supply constraints that risk future sustainability and prices of batteries (plus ethical/human rights concerns relating to the physical mining of the resource).
Royal Dutch Shell (RDSA) announced a rapid expansion of its EV charging network in Britain, aiming to install 50,000 on-street posts by 2025. The network will be rolled out thanks to ubitricity (below), an on-street charging company Shell acquired earlier this year which currently operates ~3,600 charging points in Britain so far. According to Government reports, between 280k and 480k charging points will be needed in Britain by 2030, compared to a total 25k points installed today.
Disney (DIS) is getting on the sports betting wagon, talking to companies like Caesars (CZR) and DraftKings (DKNG) about being licensees of its sports-media group ESPN. The deal, which could be valued at up to $3bn over several years. Previously ESPN has dabbled in the sports betting space, including the launch of a dedicated sports wagering YouTube channel and, back in April, its first betting-focussed broadcast for an NBA game. Importantly, any such moves run the risk of tarnishing Disney’s image and, despite the financial rewards, raising eyebrows with some of their more ethical investors.
Another product innovation from Spotify (SPOT), announcing a global rollout of a new feature called ‘Blend’ which creates blended playlists based on the overlapping music tastes of two Spotify subscribers (free or paid). Although this isn’t a revolutionary innovation, what it does show is an incredible culture of innovation over at Spotify who are getting into a good cadence or releasing software (and hardware) updates to attract new users (and continue to engage existing users).
New Listings
Allbirds (private), a New-Zealand born and now global shoe (and apparel) brand, is planning an IPO. The company, which launched in 2016 with thanks to a New Zealand research grant, produces sustainable, eco-friendly runners from wool, eucalyptus tree fibre and renewable materials. According to its prospectus, the (mostly) direct-to-consumer (DTC) brand saw revenues hit $219m last year (up 13%), with gross margins expanding to 51% (from 47% in 2018). On the flip side, it’s still running at a net loss which is annualised at $42m for 2021 (Operating Expenses are 66% of revs vs 28% for Nike and 40% for Adidas, Under Armour and Lululemon).
M&A | Cap Raise | Earnings
TikTok parent ByteDance (private) is launching itself into VR (and metaverse) with the acquisition of China’s Pico Interactive (private) for a rumoured $775m. Pico, like Facebook’s (FB) Oculus, manufacturers VR hardware and software and is in fact the third-largest VR headset maker globally, with shipments growing 44.7% YoY according to IDC.
Ideanomics (IDEX), has continued a rapid acquisition spree, buying EV producer Via Motors (below) for $450m. This follows a range of other acquisitions over the past twelve months including Solectrac (an electric tractor company), US Hybrid (a developer of electric powertrain and fuel cell technologies) and WAVE (wireless electrification). Via Motors designs and manufactures electric vans and trucks for short and middle mile delivery. This rounds out a vertically integrated EV offering that encompasses financing as well as Charging as a Service (CaaS) and Vehicle as a Service (VaaS).
Endpoint and network security company Check Point (CHKP) is acquiring Avanan (private) in a deal valued at $250-$300m. Avanan is an emerging company that is developing leading cloud email malware protection and, according to Check Point, the combined company will be the “only unified tool on the market to protect the remote workforce from malicious files, URLs and phishing across email, collaboration suites, web, networks and endpoints.
Zoom (ZM) has collapsed 17% following earnings, with the company expecting revenue to flatline for the rest of the year as the lifting of coronavirus restrictions weighs on new subscribers. Despite this, the 2Q earnings numbers were quite impressive, with EPS coming in at $1.36/share vs $1.16/share expected.
Observability platform Cribl (private) has raised $210m in Series C funding from investors including Crowdstrike (CRWD) and Citigroup (C). The organisation has two core products, LogStream, to route observability data, and AppScope, a platform that amplifies and extends Application Performance Management (APM) across more applications.
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.