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Weekly Feed Mins Read

Kristal Weekly Feed | 17th June 2019

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Got only 15 seconds? Here’s what you need to know.

Here’s a succinct summary of major global events that transpired last week.

Positives

  • Pet product maker ‘Chewy’ soars 86% on its first day of IPO trading
  • Attacks on oil tankers provides sudden resurgence to falling crude prices
  • Slack to give direct listing a try on June 20th

Negatives

  • Faltering trade talks claim a new victim: Broadcom
  • Facebook stocks get the boot from S&P ESG index
  • Hong Stock braves a turbulent stock market

 

Now, for more detail.

 

Positives

1. Pet product maker ‘Chewy’ soars 86% on its first day of IPO trading

What You Should Know

Chewy made its market debut on Friday and made a killing on the IPO floor. The company had priced its shares at $22 a piece, above the initial calculation of $19-$21. The stock opened in the morning at $36 per share, which put the company valuation at nearly $15 billion, then jumped to $41.06 before settling down around the opening price. Around the close of day, Chew’s stocks were trading at $35.85 – which is a significant hike of about 63% from the offering price.

What You Should Lookout For

Chewy markets itself as a ‘pure-play pet e-tailer’. The company has so far not reported a profit, and banks heavily on its client’s emotional quotient to drive sales. 42% of its revenue still comes from the pet food segment, 22% from sales of supplies and medication, and 25% from veterinary care. The remainder is due to various services and pet sales.

Despite not being profitable, Chewy’s online sales have seen a huge bump in recent times with sales doubling each year from 2107-18. The company’s ‘Autoship Feature’ has also become a user favourite with recurring sales of $115 million in 2014 growing to $2.3 billion in 2018. Analysts expect this robust growth to continue and for the company to make a mark among pet owners with its ‘one-stop pet shop’ approach.

Suggested Reading:

Don’t Bet Against Pets. Retail Lessons From The Chewy IPO

 

2. Attacks on oil tankers provides sudden resurgence to falling crude prices

What You Should Know

An unexpected attack on oil tankers in the Strait of Hormuz caused a surge in oil futures as markets began to panic about future availability and disruption of global oil flow. On the New York Mercantile Exchange, West Texas Intermediate crude for July delivery CLN19, +0.46%  rose 23 cents, or 0.4%, to settle at $52.51 a barrel. August Brent crude BRNQ19, +0.05% added 70 cents, or 1.1%, to end the week at $62.01 a barrel on the ICE Futures Europe.

What You Should Lookout For

While the tanker attacks drove a 2.2% gain for oil on Thursday, overall prices have failed to recoup from the 4% loss suffered on Wednesday. Front-month contract prices were down 2.7% for the week. Geopolitical events like these can cause a sudden spike in prices as the markets rally behind important commodities, but it won’t change the future forecast. The IEA has already cut down its oil demand growth forecast for oil futures given that it feels there is enough supply to meet present needs. The flailing U.S.-China trade talks have also not helped crude’s futures.

We can expect to see a 10-15% upside in oil prices up until the U.S. presidential elections as the markets remain jittery due to political upheavals. Oil futures are expected to stabilise post the elections.

Suggested Reading:

Middle East tensions lift oil, but weaker demand prospects push prices

 

3. Slack to give direct listing a try on June 20th

What You Should Know

Tech company Slack is trying out an ambitious direct market listing this week instead of treading the traditional IPO path. Direct listings are cost-effective for corporate leaders as it cuts down on underwriting fees; and since Slack is a well-known tech company among investors with enough private funding, it doesn’t need a traditional IPO offering to raise cash.

What You Should Lookout For

The only other large-scale tech company to use a direct listing is Spotify, which went public last year. In a market that has seen non-profit making companies go kaput with their IPOs, Slack is a refreshing change. The company in 2018 had reported a cash reserve of $841 million, allowing it to last for another 8.6 years at its current burn rate. Slack’s revenues have also been on the up, with an 82% growth rate in 2018.

Direct listing is a startup’s way of telling the world that it is not cash-strapped, has got its machinery working just fine, and has made it stick in the ‘fail fast’ universe of Silicon Valley. Slack’s direct listing might open the floodgates with companies like AirBnB considering the option. It also means good news for investors who might be able to buy shares in stable tech companies for a reasonable price.

Suggested Reading:

Why Slack’s Upcoming ‘Direct Listing’ May Work for Investors

 

Negatives

1. Faltering trade talks claim a new victim: Broadcom

What You Should Know

Semiconductor supplier Broadcom (NASDAQ:AVGO) which had so far maintained its full-year guidance has now reported that it is cutting that guidance due to poor second-quarter results affected by the U.S.-China talks. The loss of business from Huawei has been an important part of this loss.

What You Should Lookout For

Revenues from semiconductor solutions have dropped by 10% over the last year. Broadcom CEO Hock Tan said: “While enterprise and mainframe software demand remained stable, particularly in North America and Europe, with respect to semiconductors, it is clear that the U.S.-China trade conflict including the Huawei export ban is creating economic and political uncertainty and reducing visibility for global OEM customers”. The company has knocked $2 billion off of its previous revenue guidance for the full year, due to the foreseeable weakness in the semiconductor business.

Suggested Reading:

Broadcom’s Second-Half Recovery Is Dead

 

2. Facebook stocks get the boot from S&P ESG index

What You Should Know

Earlier in the week, Global Head of ESG Reid Steadman published his reasons for removing Facebook from the S&P’s ESG index in a public blog post. Despite being the fourth largest company on the S&P 500 roster, Facebook was dropped because of its low social and governance sub-scores, which are important components of the ESG index.

Facebook’s ouster, which occurred at the end of April, had prompted CEO Mark Zuckerberg to go on record saying that the company would hereafter be committed to privacy protection.

What You Should Lookout For

Facebook’s shares have already dipped 2% since news reports of emails linking CEO Zuckerberg to the company’s controversial privacy practices. The emails may feature heavily in the FTC (Federal Trade Commission) inquiry into security lapses related to the Cambridge Analytica scandal and whether they violated a 2012 consent decree between the agency and Facebook. This along with the ESG scores may cause further problems for the tech giant in the coming future.

Suggested Reading:

Why Facebook Was Dropped From The S&P 500 ESG Index

 

3. Hong Kong braves a turbulent stock market

What You Should Know

The Hang Seng index fell for the third consecutive Friday due to lasting political turbulence in the Asian region. Mass political demonstrations against a proposed bill that may see some criminals extradited to mainland China, rocked the stock markets on Wednesday and Thursday. The index ended the week with a 0.5% rise then when it started it.

What You Should Lookout For

Market sentiment vis-a-vis the protests seems to be mixed. While some analysts are pointing out that the ‘Occupy Central’ protests in 2014 had no long-term effect on stocks, others have said this may hamper business for companies like Tencent and Ping An which have a significant clientele on the mainland than in the local region.

There are also fears that passing this extradition bill may cause Hong Kong to lose certain trade-related privileges with the U.S. This could prompt MNCs in the region to move their staff to other global hubs in the region, like Singapore. As of Saturday, the bill stands suspended but investors in the region will be closely monitoring further developments.

Suggested Reading:

Hong Kong stocks end turbulent week on downbeat note

Disclaimer

The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.

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