The Saturday - 5/1/21 Edition
Volume 2, Issue 16
Good morning,
Despite our frequent coverage of religious institutions’ investment practices, we must confess to knowing woefully little about what makes certain religious denominations different than others. Baptist, Presbyterian, Unitarian… no idea.
So we did some research and figured it out: different churches believe in different…
Oil companies.
On Thursday, Epworth Investment Management - the Methodist Church’s investment arm - dumped nearly $30M in Royal Dutch Shell stock. According to Epworth, the move was prompted by a misalignment between Shell’s operations and the Paris Accord.
Makes sense. Oil companies aren’t super green. Shell doesn’t love the Paris Accord. Intuitive stuff. Except…
Last year, the Church of England’s pension fund allocated $790M to a “climate index that benchmarks and invests in companies making progress towards Paris climate agreement targets.” That index included… Shell.
In fairness to the Paris climate index fund, however, it did exclude some companies, including Chevron. Well…
According to securities filings, Ensign Peak Advisors - the Mormon Church’s investment arm - holds over $300M in Chevron stock.
So there you have it. If you thought agreeing on a savior was difficult, try picking out a gas station!
It’s Saturday May 1, 2021.
It’s Time
On November 12, 1993, the Ultimate Fighting Championship aired UFC 1: The Beginning, a first-of-its-kind, 8-man, single-day tournament, featuring combatants from diverse martial arts backgrounds vying for a $50,000 grand prize.
UFC 1 was underwhelming; promoters couldn’t fill half of the arena, the press gave it next-to-no coverage, and the fights were laughably bad.
One of those fights, for example, pitted Brazilian jiu jitsu legend Royce Gracie against Art Jimmerson, a journeyman boxer wearing a single boxing glove:
Jimmerson was taken to the ground and tapped out before throwing a single punch. (Those with two minutes to spare can watch the “fight” here.)
As we like to say, that was then. But, now?
In 2020, while other sports leagues struggled, the UFC brought in a record $900M in revenues and trails only the NBA in YouTube and Instagram followers.
And now, as of Thursday, fans can get in on the action, thanks to Endeavor Group Holdings’ IPO.
Founded by sports agent Ari Emanuel - the inspiration for HBO’s Entourage’s Ari Gold - Endeavor is an entertainment powerhouse that owns talent agencies William Morris and IMG, as well the Miss Universe pageant, the Professional Bull Riders organization, and a 50.1% stake in the UFC.
The IPO and concurrent private placements allowed Endeavor to raise $1.8B in new cash - money that will mostly go towards purchasing the remaining 49.9% interest in the UFC.
While the pandemic actually benefitted the UFC - who were quick to set up a “Fight Island” in Abu Dhabi - the same can’t be said for the remainder of Endeavor’s subsidiaries: the group posted a $625M loss last year, as its revenues dropped from $4.6B to $3.5B.
Still, the losses didn’t stop the company from reaching an $18B market cap at Friday’s close.
This week, the company also announced that Elon Musk would join its board of directors, so if only for that, $18B sounds like a bargain!
Sonder
Speaking of going public…
On Friday, Sonder announced that it was going public via a SPAC merger that values the Montreal/San Francisco-based hospitality startup at $2.2B and will bring in $650M in fresh capital.
Sonder can be thought of as a hybrid between Airbnb and WeWork. Like the former, it rents out residential properties for (mostly) short-term stays, but like the latter, Sonder itself leases and manages those properties, which helps create a more uniform, tailored, hotel-like experience for guests.
Sonder currently operates in 30+ cities across 8 countries, has served over 1M customers to date, and this month, the company added a landmark property to its portfolio, taking over the iconic Flatiron Hotel in New York City.
About That Deli
Last week, we discussed Hometown Deli - the $100M market cap delicatessen ran by a local high school’s wrestling coach. Given the lofty valuation and sub-$40k sales, we lazily inferred that Tony Soprano’s crew may be running the shop, but we were wrong; Hometown’s investors are surprisingly… institutional.
According to Financial Times, the deli’s backers include “a Hong Kong firm set up by veterans of Och-Ziff Capital Management, which sees its investment as a potentially lucrative variation on the special purpose acquisition companies.”
Oh boy…
SPACs are many things to many people, but we’ve never heard anyone refer to them as overly burdensome vehicles through which to go public. SPACs are the variation.
But apparently Maso Capital disagrees.
According to Maso Capital, acquiring random OTC companies (such as Hometown) allows sponsors to quickly take companies public without the cost of creating a SPAC entity and without SPAC’s other operational constraints - i.e. the two year window to identify a merger target and close the deal. Plus, you know, you can sell sandwiches in the meantime!
If this sounds insane and incredibly toppy… we don’t disagree. Still, readers might get a kick out of this fact:
Through Maso Capital, the endowments of Duke and Vanderbilt universities have over $2M invested in the deli.
Not your average cafeteria food!
Apple
Well, it was an interesting week in Cupertino.
The Good
Apple’s 2021Q1 earnings call was on Wednesday afternoon and the results were absolutely bonkers. Just consider these two stats:
There were 90 days in the first quarter of the year. Apple’s revenues during that time? $89.6B!
There were 12 weeks in the quarter. Apple’s profits? $23.6B!
It’s easy to get jaded about dollars when governments are printing trillions and zero-revenue companies fetch multi-billion dollar valuations, but putting up $1B per day sales figures and $2B per week profits is flat out bananas.
Yes, that’s our official take: bananas.
Three main factors led to the company’s record quarter.
(Presumably) emboldened by GameStop gains and stimulus checks, consumers seem to have developed more expensive tastes. While iPhone 11 Pro Maxs made up 13% of iPhone 11 sales a year ago, the new $1,099 iPhone 12 Pro Max accounted for 20% of Q1 iPhone sales.
The iPhone 12’s 5G capabilities helped double the phone’s sales in China, to a new high of $17.7B.
Apple also cashed in on the work/study from home trend, with its laptops and iPads also boasting significant sales increases.
The Bad
Last September, we discussed the battle pitting Apple versus the new Coalition for App Fairness - a duel centered around the 30% commission that the iPhone maker collects on in-app purchases. Spotify, the Swedish music streaming company, was particularly vocal in its criticism and European regulators seem to have listened.
On Friday, European Union antitrust regulators charged Apple with anticompetitive violations for “abusing its control over the distribution of music-streaming apps.”
These charges are a continuation of the EU’s focus on so-called gatekeeper businesses - popular, widely adopted platforms who use their market dominance to cross-sell products and keep the competition at bay.
While gatekeeper legislation - targeting companies with other 10,000 business customers or 45 million European end users - may take years to pass (if at all), the EU’s competition regulators have other tools at their disposal and are increasingly taking aim at Big Tech.
Apple will now have an opportunity to argue its case before the European Commission, but if it loses, it faces fines of up to 10% of yearly revenues. At the current rate, that’s a $36.5B fine. Ouch!
The Ugly
Speaking of arguing its case… This upcoming Monday, Apple will testify in a lawsuit filed by Epic Games.
As we discussed last year, Apple takes a 30% cut of all in-app purchases, but Epic Games tried to bypass that commission by giving Fortnite players alternative means of paying for features within the game. Apple responded by kicking Fortnite off of the App Store and Epic sued, which is bad news for Apple, regardless of the outcome.
As WaPo notes, if Epic wins, Apple may have to “give up control of app distribution, allowing customers to freely install software on iPhones, much like they do on desktop computers.”
Even if Apple were to win, however, it could prove a Pyrrhic victory: such a ruling could become a “lightning rod” for lawmakers and further embolden the Department of Justice, who are already investigating the company’s market power and allegedly monopolistic activities. Yikes.
Did we mention that Q1 sales were great tough?
Have a great weekend!