Tuesday,
October 27, 2020

Market recap

Dow Jones

27685.38

-650.19 (-2.29%)

S&P 500

3400.97

-64.42 (-1.86%)

Nasdaq

11358.94

-189.34 (-1.64%)

Facebook

$277.11

-$7.68 (-2.70%)

Bayer

$12.60

$0.10 (0.80%)

Dunkin'

$103.10

$14.311 (6.12%)

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Top Story

Ant Group’s IPO Could Be the Largest in History

Bypassing Wall Street

Ant Group, the Chinese fin-tech company, is planning an IPO in Hong Kong and Shanghai. Ant’s payment service has 730 million monthly users, which is more than twice the population of the US. The platform functions much like a bank, giving users access to credit cards, mutual funds, insurance, and more. Ant’s profits have climbed more than 1000% between the first half of 2019 and the first half of 2020

If Ant hits its goal of raising $34.4 billion, its IPO would be the largest in history. Ant would beat its former parent company Alibaba (BABA), which raised $25 billion in 2014, as well as Saudi Aramco (ARAMCO:AB), the state-controlled Saudi Arabian oil company, which raised $29 billion and currently holds the record for the largest IPO to date.

A Win for Chinese Stock Exchanges

Ant’s public debut will also be historic because it will bypass New York stock exchanges. Several years ago, a company like Ant likely would have rushed to list on Wall Street the way Alibaba did. But instead, Ant will only list in Hong Kong and on Shanghai’s Star Market—a new technology-focused exchange.

Ant’s listing will be a big win for the Chinese government. Beijing has been working to encourage more Chinese tech companies to list their shares at home and to spur more investors to buy stocks on Chinese exchanges.

The Chinese government has also been working to demonstrate that Hong Kong can remain an international financial hub despite new national security laws. Additionally, Chinese President Xi Jinping has been working to grow the Star Market recently, and Ant’s choice to list on the new index will give the Star Market more value and legitimacy.

Heightened Scrutiny For Chinese Companies in the US

Ant’s decision not to list on Wall Street was likely influenced by recent tensions between the US government and Chinese tech companies like TikTok and WeChat. Additionally, Chinese coffee chain Luckin Coffee (LKNCY) was kicked out of the Nasdaq over the summer because of accounting irregularities, and Ant is likely trying to avoid heightened scrutiny of Chinese companies on US exchanges.

Ant’s Hong Kong stock will begin trading on November 5, and has not yet provided a Shanghai listing date. Investors and lawmakers around the world will be eager to see how this historic IPO unfolds and how it could impact markets as well as the geopolitical landscape.

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Facebook Launches Cloud-Based Video Games

A Surge in Demand for Cloud-Based Games

Facebook (FB) is entering the cloud-based video game market. The social media giant announced yesterday that it will make six games available to stream through Facebook Gaming for free.

The COVID-19 pandemic caused a surge in demand for video games. Between April and June of 2020, year-over-year video game sales climbed by 30%. The boom is likely to continue as the weather gets colder and people continue to practice social distancing. Cloud-based video games have been particularly popular recently because they do not use up memory on devices and because consumers can access them without purchasing new hardware.

Facebook Takes a More Gradual Approach Than Other Tech Companies

Numerous tech companies are rushing to gain traction in the world of cloud-gaming. Over the past year, Google (GOOGL), Microsoft (MSFT), and Amazon (AMZN) have all rolled out subscription-based cloud gaming platforms. Sony (SNE) and NVIDIA (NVDA) have had cloud-based gaming services for some time but are working to expand them.

Compared to its big tech peers, Facebook has been slower to dive into cloud-based gaming, but it hopes to gradually grow its user base over the next decade. Facebook depends heavily on advertising, and cloud-based gaming could be a useful way to keep people spending time on Facebook going forward.

Conflict With Apple

The rollout of Facebook’s cloud gaming service has spurred a new conflict between Facebook and Apple (AAPL). Facebook’s gaming service will launch on its desktop website and Android app but will not be available on iOS yet due to Apple policies—which Facebook called “arbitrary.” Facebook joins Epic Games, which owns the video game Fortnite, and numerous other app developers in criticizing Apple’s policies.

Investors will be carefully monitoring discussions between Apple and Facebook as Facebook’s cloud-based gaming service debuts in select regions. The service will become available in California, Texas, Massachusetts, New York, New Jersey, Connecticut, Rhode Island, Delaware, Pennsylvania, Maryland, Virginia, West Virginia, and Washington D.C. this week, and will make its way to other areas in the coming months.

Bayer Will Acquire AskBio for Up to $4 Billion

Investing in Gene Therapy

Bayer AG (BAYRY), the German pharmaceutical and life sciences company, is planning to acquire US biotech firm Asklepios BioPharmaceutical for as much as $4 billion. Bayer will pay an initial $2 billion for the company followed by up to $2 billion more if AskBio hits certain success milestones.

AskBio, a closely held North Carolina-based company, specializes in developing gene therapies for conditions like Parkinson’s disease and congestive heart failure. AskBio also manufactures components used by other cell- and gene-therapy businesses. This arm of the company helps fund its research of experimental treatments.

A Booming Industry

Gene therapy is a booming industry. As researchers find ways to insert functional genes in the body’s instruction manual, there is a potential to cure a wide variety of diseases resulting from a faulty or missing gene.

Bayer is not alone in its quest to invest in gene therapies. Drugmakers like Novartis AG (NVS), Roche Holding AG (ROG:SW), and Bristol-Myers Squibb Co. (BMY) have recently acquired gene therapy companies as well.

Challenges for Bayer

Bayer has faced several hardships recently, and sees the acquisition of AskBio as a way to move forward with the drug making arm of its business. In 2018, Bayer acquired Monsanto for $63 billion. The goal of this deal was to give Bayer a fast-growing stream of revenue that would be separate from pharmaceuticals. However, Bayer has been plagued with legal disputes about Monsanto’s Roundup weed killers. These lawsuits have cost the company $10.9 billion. Additionally, the COVID-19 pandemic has hampered Bayer’s agriculture business.

Some investors are also concerned that two of Bayer’s most profitable drugs, Xarelto and Eyla, will lose patent protection in the coming years, so it needs to develop new products. The company hopes that its acquisition of AskBio will help achieve this goal, and will help Bayer recover from some recent difficulties.

Not-So-Breaking News

  • Shares of Dunkin’ (DNKN) spiked by 15% yesterday on news that the coffee and donut chain was in talks with privately held Inspire Brands, which owns Arby’s and Jimmy John’s. Though the pandemic has disrupted consumers’ morning coffee habits, Dunkin’ has outperformed rival Starbucks (SBUX) thanks to strong drive through business and marketing efforts.
  • Hasbro (HAS), the toy conglomerate behind Nerf, My Little Pony, Parker Brothers Board Games, and other brands, reported a 4% drop in adjusted revenue yesterday. Though Hasbro's board game sales are strong, its entertainment arm has had to delay the production of TV shows and movies.
  • China announced new sanctions on US companies including Lockheed Martin (LMT), Boeing Defense (BA), and Raytheon (RTX), which it says were involved in Washington’s sales of weapons to Taiwan.
  • Impossible Foods will introduce its plant-based burgers to nearly 600 Sobeys grocery stores in Canada starting this week. Last week, the company launched the product at stores in Hong Kong and Singapore. Impossible Foods has raised over $700 million in funding this year, bringing its total funding to $1.5 billion.
  • AstraZeneca (AZN) announced yesterday that its experimental COVID-19 vaccine has triggered a similar immune response in older and younger adults. The company’s shares rose 1% on the news.
  • It is easy to rack up credit card debt quickly if you don’t pay off the entire balance. Read more about using a loan to pay off credit card debt at SoFi Learn.

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