The week tech stocks fell apart
And: The pandemic will change us forever / Infrastructure is alive (and well) / Technology dominates the political debate / The Second Cold War gets more interesting every week
Tech stocks fell apart this week
The massive rally of tech stocks during the “coronavirus times” ended rather abruptly this week, with the stock prices of Big Tech companies falling last Thursday (and Friday). Interestingly, behind this hard stop seems to be the hand of Japan’s tech conglomerate SoftBank, which apparently had acquired options (quite in the dark) that exposed them to around $50bn of tech stocks. This would have helped the market rally in the last few months, but also accelerated the fall this week (Story)
There are concerns on a potential financial crash, as the Finance sector is one of the “bright spots” in this crisis:
It is one of the industries that seem to be keeping London alive: The industry’s Gross Value Added is expected to fall just -2.6% this year. As the FT says: “companies are still being bought, sold and listed, and books are still being audited” (Story)
It is also an exception in the Second Cold War between China and the US: large funds BlackRock and Vanguard are opening branches in China, and JPMorgan is spending $1bn to control its Chinese subsidiary. China seems to be quite open to this (and even stimulating the deals…) (Story)
There are more signs that the pandemic will change us (forever)
Companies are preparing for a sustainable “work from home” future: an increasing amount of people believe that “work from home” is here to stay, or at least that it will be here (much) longer than initially expected. Some companies have even started to analyze what kind of changes will be required in their internal processes to accommodate this new situation (Story)
So the impressive growth of companies like Zoom (linked to remote work) might also be sustainable: Zoom keeps confirming that they’re one of the winners of this crisis, driven by remote working, schooling and socializing. The company reported better than expected sales and raised its full year outlook early in the week, and its stock (before the corrections on Thursday) had jumped more than +800% from a $36 listing price last April, even if concerns remain about the app’s links with China (Story)(Story2)
The perspectives for digital devices look brilliant: Apple expects to sell 75m 5G iPhones this Fall, roughly the same amount of units as last year, in the pre-pandemic world. This shows how much the company believes that digital devices and connectivity will be demanded in the “new normal” (so much as to offset potential macro-economic headwinds) (Story)
The real estate market is starting to show that people believe there will be a structural change in the way we live: As a very significant example, New York citizens are shifting to the suburbs, inflating real estate prices in those areas, while stressing downtown property at the same time (Story)
E-commerce keeps consolidating as the dominant way of commerce:
Walmart just launched an “anti-Amazon Prime” subscription model (Story)
Meanwhile, Amazon keeps turning the Whole Foods Market stores into a logistics asset. The last confirmation comes with the opening of a delivery-only facility in Brooklyn (Story)
Air travel is changing, maybe forever: The number of passengers has fallen drastically (interestingly, with the exception of China) and airlines have started to reposition fleets to exploit cargo opportunities (Story)
Digital IDs are finally becoming a mainstream need: The massive shift of human activities to digital is creating the need for mechanisms to prove / certify people’s identities online. So countries like India are moving to implement these systems, that they also expect to facilitate public health actions like contact-tracing. And the debate is now starting in countries with more “liberal” traditions, like the US and UK, where one could argue that this is happening anyway, but through private companies like Apple, Google, Facebook or Amazon (Story)
The digital divide is expanding into a “total divide”: The pandemic is increasing socioeconomic gaps. Not only those between people (and employees) using technology and those that can’t, but also between rich and poor, both in advanced (e.g. US) and emerging markets (Story)(Story2)
Is this the end of (a large, non-digital part of) the service economy? The “physical product economy” is recovering faster than the service sector, which is suffering from “social distancing” restrictions (or customers’ own caution), as many services require physical contact (Story)
Infrastructure is alive (and well)
Investors understand that physical network infrastructure will be a key enabler for the digital life that’s coming: TIM, the Italian telecom incumbent, just sold a large stake in its (mostly copper-based) fixed access network to KKR, a leading private equity fund, that will now be exposed to the nationwide deployment of Fiber to the Home in Italy. There have also been rumors that KKR would be interested in acquiring BT, which has a relatively similar project to deploy fiber in the UK (Story)
“Dumb pipes” are revealing to be one of the strongest links in the content value chain: ViacomCBS’s shares have fallen -30% this year, and the companies attempts to pivot into streaming services have largely failed for now, as that market is overcrowded and dominated by Netflix. Meanwhile, Charter, John Malone’s cable operation, has seen its shares rise 22% this year to an enterprise value of $210bn, even amid the massive cancellation of PayTV subscriptions in the US, and driven by the company’s exposure to the fixed access broadband market (an essential service in pandemic times). Is this “revenge of the dumb pipe” a surprise? It might be, for dumb analysts (Story)
AT&T is selling its digital advertising business, to focus on the core: AT&T, a key representative of telecom operators aspiring to be “something else”, has now identified a number of “non-core” assets that they want to sell, to release cash and reduce the company’s leverage. And there are rumors that they are exploring the sale of their digital advertising operations, after having acquired a large company specialized in this market (AppNexus for $1.6bn), claiming there were synergies with their content assets. They had also initially included the Warner Bros. video games production unit in the list, but have now decided it is “too valuable to unload” (Story)(Story2)
Technology dominates the political debate
Facebook is at the center of political debates, globally: The company is making preemptive moves (e.g. against recently created Russian accounts) before the US election. They’re also navigating complex political waters in India, where they just banned the account of a local politician from the ruling party, potentially exposing themselves to government’s retaliation against the company’s increasing political interests in the country (Story)(Story2)
Facebook is also in a bitter dispute with the government in Australia: The company is threatening to block users from sharing news from professional sources in the country, as a response to the government’s plan to make platforms pay news organizations for the content they distribute. Analysts (within news organizations…) are starting to suggest to the Australian policymakers that maybe this is not the right approach (Story)(Story2)
Taxes on digital services may backlash against other sectors: In countries where regulators have imposed an additional tax on digital services, like the UK, Turkey or Austria, Google has started to pass the cost to advertisers, through higher prices (Story)
New political (and ethical) debates are emerging as insurance businesses based on data analytics start to proliferate: Should healthier people, or people with what are considered healthier ways of life (today) pay less for their insurance policies? Wouldn’t lead to prohibitive costs having to be paid by exactly those people who most need healthcare?
Alphabet’s health unit Verily just launched Coefficient Insurance, with an initial offer for employers to hedge risks in the costs of employees’ health plans, but with apparent plans to evolve into a more “invasive” operation, based on monitoring people’s behavior through their smartphones (Story)
Pasarpolis, an Indonesian startup, wants to revolutionize the insurance market through digital technologies, including the “use of AI to build personalized insurance plans”. They have financial support from Xiaomi, a major smart device vendor in the region (Story)
The Second Cold War gets more interesting every week
The sale of TikTok US just became more difficult: Now China says that this would involve an export of AI technology so it would require an explicit license from the Chinese government. TikTok’s owner ByteDance has responded saying that they will (of course) obey Chinese regulations (Story)(Story2)
The WeChat “super app” model could be a threat for democracies, but restricting Tencent’s activities in the West may not be enough to solve the problem: WeChat is an amazing business, but its model is a risk for democracies. Business Week just published this analysis of how the Chinese “super app” provides great convenience to users, but is also used by the government as a pillar of the “surveillance state”. Out of China, other companies are trying to replicate the model, so just banning WeChat may not be enough to stop this from happening (Story)
Has Huawei found a way to survive? Thanks to a license that Intel secured before the latest restrictions, Huawei seems not to have impediments to build its public cloud infrastructure, For network functions that can run on general purpose hardware, this could even be a way out of the limits currently affecting their 5G products (Story)
Techno-protectionism keeps growing in the West, including traditionally “open” economies like the UK and the Netherlands:
The UK might see Arm as a geo-strategic asset, and oppose a sale to Nvidia, that would result in an increased dependence on the US) (Story)
The Netherlands, forced by circumstances, are abandoning their traditional mercantile approach to international relations. ASML, the leading vendor of machinery to build chips, is at the center of this shift (Story)
India is now at the center of the Tech Cold War, amid increasing political tensions with China: The latest development is the Indian government’s ban of another 118 Chinese apps, after the initial 59, weeks ago. This comes in the middle of bitter disputes for an Himalayan territory that reaches -40C in the winter and has 60% of the Oxygen levels that normal life requires (Story)