T.W.I.T. #6: IPOs, TikTok Drama, Salesforce largest share price increase in history
Welcome to T.W.I.T #6, where we review week 35 2020.
Performance Review
The S&P500 was up 3.3% for the week, ending up 8.7% on a year to date basis. From a sector standpoint, Software outperformed as Salesforce experienced its largest price increase since the IPO (more on that below) on Wednesday August 26 th; the SMH was up 2.8% and the SOX +1.7%. QNET Index was up 5%. From Wednesday, we saw a rotation into Software and it seems that Semis funded that.
Now, moving on to specific Tech news
Key Developments in Tech World A lot of IPOs
Several interesting IPOs as well. The four main ones worth reading the filing of being Unity (gaming engine and tools), Ant Financial (no need for an introduction…), Snowflake (the One Data management Tool to rule them all) and Asana (Smartsheet competitor).
Internet: TikTok M&A Speculation
WMT+MSFT. This week we got confirmation that Walmart was joining the fray, teaming up with Microsoft for a joint bid. The company took the rather unusual step of issuing a statement about it. A Walmart+Microsoft deal makes sense from an industrial strategic standpoint. Microsoft brings IT resources and cost synergies; Walmart brings appeal to Washington, logistics and distribution centers. It is impossible to beat Amazon at its own game as eCommerce stands today. Share gains in eCommerce are more likely to happen as consumer behaviors change, in this instance to Social Commerce. As I wrote before, the battle lines are being drawn, and these are the first skirmishes of what is likely to be defining for large US Internet firms. For Walmart, I do not know whether this move will also help them in India, through a Flipkart integration…
ByteDance is a forced seller. Facebook, Apple, Google and Amazon would probably face regulatory pressures. This article quotes a $35-$40bn offer from Microsoft+Walmart, and a $20bn offer from Oracle. A month ago, ByteDance was seeking a $50bn valuation.
ORCL????! WTF???!!! Yep. That is a sign of our times…Other than Larry being a friend of and donor to Donald, it is hard to see any logic. In a sense, that would be the best deal for Facebook, as it would ensure that TikTok fails. I cannot wait to see Larry lip-synching. I also cannot wait for the call and the slide-deck explaining to the financial community how strategic and synergistic that deal may be.
All of this is good for Facebook. It creates a lot of distraction at ByteDance, as Facebook launches Reels. If Oracle gets the deal, talent will be rushing out to the exit. In fact, it has already started, with Kevin Mayer quitting only a few months after arriving. In the meantime, I would guess projects are frozen and employees depressed.
Semis: Kioxia, Marvell pivoting to custom ASIC and more restrictions coming to Semicap Equipment
Kioxia. A short reminder, Kioxia is the new name of Toshiba Memory, which Toshiba spun off to a consortium of investors in 2018 as it was dealing with losses from the nuclear power station division. That consortium included Bain Capital and SK Hynix, among others. Kioxia has key intellectual property on NAND Memory and is the second largest vendor worldwide behind Samsung. However, in the last few years, they have, in my opinion, been underspending and falling behind technologically. They will get $3.6bn out of the IPO. It is a hard sell to investors, as YMTC (the most advanced Chinese NAND manufacturer) is tripling capacity next year, potentially laying the ground for a multi-year NAND oversupply.
Marvell pivoting to custom ASIC. During its F2Q21 Earnings Call, Marvell announced its intention to move Cavium’s Thunder X2 ARM based silicon to a custom ASIC model and took an impairment charge on Cavium on this shift. They will work with the Cloud Titans on future ARM development. Interestingly, Marvell mentioned that this move was happening across Data Center and 5G. They also expanded partnership with TSMC at 5nm. In terms of read across, Marvell confirmed that enterprise spend on legacy infrastructure is weak for networking and servers.
Finally, there was further noise on the US/China spat, with the US now eying restrictions to chip equipment and other exports as the US Commerce Department is seeking public input on how to define new technologies as it determines “whether there are specific foundational technologies that warrant more restrictive controls”. NYT article here. This would likely affect Semicap Equipment vendors, which have this year benefitted from large increases in China Domestic Wafer Fab Equipment spending to $9–10bn vs $5–6bn last year, on a total of $55–60bn, coming specifically from SMIC and YMTC. I expect more headline risk on that topic as the Trump administration seems in a
Software: Salesforce shares up 26% on Wednesday…2ndlargest move was 19% on the 24thof November 2008
The major new this week came from excellent results from Salesforce, across the board. In the week, we also saw good results from Workday, Elastic, and Splunk, all highlighting “return to normalcy” with increase deal scrutiny. Now, I must say I remain puzzled by the Salesforce share price reaction, but I should not. The chart looks like so many other Tech megacap charts, just with a lag. And they all look like charts of US money supply. In any case, shares are up 66% YTD, but FY22 Rev (no COVID impact in these) estimates are down 2%. The move created $55bn of market cap overnight. I show below a table with the ten largest daily moves of Salesforce.
Video Games: Upward Pricing and Virtual Worlds
The next Call of Duty will cost $70 on next-generation consoles. That is a $10 increase vs previous pricing and follows on the footsteps of NBA2K21. This is the first time in 10 years that publishers are raising prices on their games, despite much larger development costs. It is a positive, if expected, sign for the industry ahead of this console cycle.
More evidence that the lines between video games and reality are blurring. A quote: “Video games have reached a level of realism where in-game cinematics can now rival blockbuster films,” says Matthew Kanterman, an analyst with Bloomberg Intelligence. “Big studios are even using game development tools to make movies these days.” That’s right. EPIC Unreal engine powers “The Mandalorian “. That makes them extremely attractive assets when one contemplates a future where we interact with the Internet through virtual worlds, rather than keyboard+screen+mouse.
That’s all for T.W.I.T. #6, Week 35 2020.
Originally published at https://kinesisinvesting.com on August 29, 2020.
