Monday's Headlines: Here We Go Again...
Here were the biggest movers in the MyWallSt shortlist yesterday:
Moving Up ⬆️
Nautilus (NLS) 5.7%
Lovesac (LOVE) 5.3%
Duolingo (DUOL) 3.6%
RH (RH) 2.7%
Moving Down ⬇️
Upstart Holdings (UPST) -19.7%
Twitter (TWTR) -5.1%
Farfetch (FTCH) -3.5%
Lemonade (LMND) -3.0%
Here are the stories that you need to know ahead of market-open today, Monday the 11th of July.
Here We Go Again 😩
Twitter (TWTR) shares are down close to 7% in pre-market trading this morning on the news that Tesla CEO Elon Musk is looking to terminate his proposed acquisition of the company.
The $44 billion deal has been in jeopardy since May, when Musk put it on hold so he could glean more information on the number of bots and spam accounts on the platform. Over the weekend, his lawyers drafted a letter to regulators that claims Twitter “is in material breach of multiple provisions of that agreement,” and it purported “false and misleading representations”.
Twitter intends to hold Musk accountable for the original deal, which would see Twitter bought out for $54.20 a share, a significant premium on the roughly $34 a share we should see at today’s market open.
Twitter’s suit will set up a long and protracted legal battle with two likely outcomes: Musk pays the $1 billion ‘break-up fee’ written into the original acquisition deal for walking away; or the court orders specific performance that would see Musk forced to carry out the $44 billion acquisition.
Tesla stock is down 27% since this circus began, meaning that he has less money to pay for the company. Twitter and almost every other tech stock have also dropped significantly in that same period, meaning the deal’s terms have Musk paying well over the odds. While we are not legal experts, it does seem that Musk’s cold feet may have less to do with the legality of Twitter’s actions and more to do with the realization that he has found himself on the tail end of a terrible deal that is far more troublesome than it is worth.
Alibaba Gets Hit With Fresh Fines 💸
Shares of Alibaba are down close to 5% in pre-market trading this morning after the e-commerce behemoth was hit with new fines from Chinese market regulators.
Alongside Tencent, Alibaba was accused by the State Administration for Market Regulation (SAMR) of failing to comply with anti-monopoly rules on the disclosure of transactions in the region. A list was released cataloging 28 deals that violated the rules, including the 2021 purchase of equity in its subsidiary, the Youku Tudou streaming platform.
The fines meted out by SAMR are relatively small (500,000 yuan, or roughly $74,700) considering the size of these companies. Alibaba, for example, pulled in over $134.5 billion in revenue for its last fiscal year.
However, what is really worrying investors is the fact that the regulatory crackdown in China does not appear to be abating.
Since the end of 2020, government authorities in the region began introducing stricter regulations on its domestic technology sector in an effort to rein in the power of some of its biggest companies. This triggered a big sell-off in those businesses affected, with Alibaba shares falling more than 70% between October 2020 and May of this year.
In recent weeks, there had been some green shoots in terms of an easing of scrutiny on the sector. However, these fresh fines will serve to remind investors once again that, in a region like China, the government can have a massive impact on the success or failure of its companies.
Levi Strauss Beats The Street With a Solid Q2 👖
World-renowned clothing company Levi Strauss revealed its second-quarter results last week and it was some rare good news for investors. The company beat expectations for both revenue and earnings per share (EPS) — posting revenue of $1.47 billion with an EPS of $0.29 against respective predictions of $1.43 billion and $0.23.
Digital revenue received a boost of 3% for the quarter and now represents 20% of the firm’s total sales. CEO Chip Bergh was quick to point out that “jeans are now much more acceptable in the office,” meaning that denim companies like Levi’s are set to profit significantly from the new world of work.
Levi’s was founded in 1853, and quickly rose to prominence in the early 1900s thanks to its patented rivet technology, which both lengthened the lifespan of its jeans and acted as a distinguishing design feature of the company. Levi’s grew rapidly up until the 1990s, when competition from cheaper overseas products threatened to derail it entirely.
Despite wavering through the ‘90s and early 2000s, Levi’s now sells its products under a number of brands — including Dockers and Denizen — and went public in 2019 through an IPO for the second time, following an IPO in 1971 and subsequent reprivatization in 1985. It now maintains a healthy and profitable balance sheet and has retained much of the luster and cultural significance that it worked so hard to build throughout the previous century.
Despite being down over 32% this year-to-date, Levi’s seems to be making significant progress on righting the ship as we continue through this time of economic uncertainty.