October 29, 2020

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Top Story

An Important Week for the Tech Industry

Another Hearing With Tech CEOs

Yesterday, CEOs of three major social-media companies testified virtually in front of the Senate Commerce Committee. The hearing, featuring Facebook (FB) CEO Mark Zuckerberg, Twitter (TWTR) CEO Jack Dorsey, and Google (GOOGL) CEO Sundar Pichai, centered around how these companies deal with users expressing political opinions on the three platforms.

Lawmakers on both sides of the aisle have voiced concerns about how the three companies do, or do not, moderate political content. Much of yesterday’s discussion centered around Section 230 of the Communications Decency Act, which protects social media companies from being liable for user-posted content. The law has been in place since the 1990s but has recently been criticized by both Democrats and Republicans. All three tech CEOs expressed how important the law is for their companies.

Discussions of Section 230

Twitter CEO Jack Dorsey argued yesterday that Section 230 has given smaller social media companies the ability to compete with larger, better-funded companies. He said changes to Section 230 could also lead to more content being removed on social media platforms. Dorsey faced particular scrutiny during yesterday’s hearings as he was questioned about Twitter’s decisions to block or mute various political tweets.

Mark Zuckerberg, CEO of Facebook, also voiced support for keeping Section 230, but said the government ought to play a more active part in regulating tech companies. Additionally, Sundar Pichai, CEO of Google, made arguments for keeping Section 230 in place, saying the law is one of the reasons why the US is a leader in the technology sector.

Earnings Reports to Watch

As investors analyze this latest conversation between tech CEOs and lawmakers, they will also be examining earnings reports from tech powerhouses Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Facebook (FB) this week. Together, these companies have a market capitalization of $7 trillion. Their earnings reports could have a large impact on the cap-weighted S&P 500.

Microsoft reported earnings after the bell on Tuesday. The company beat expectations thanks to strong demand for its cloud services and gaming products. The other four tech titans will report after the bell today. Investors will be eager to see how these companies performed during an unprecedented summer, and how decisions from Capitol Hill could impact


Apple Lays the Groundwork to Build a Google Search Engine Competitor

An Antitrust Investigation From the DOJ

Apple (AAPL) is quietly working on developing in-house search engine technology. The most recent version of the iPhone operating system, iOS 14, displays search results from Apple’s system and links directly to websites when people type in questions. Apple tends to keep its new projects highly confidential, but many believe that this new feature is a sign the company is working to build a search engine that will compete with Google (GOOGL).

Google currently pays Apple billions of dollars to make sure that the flagship Google search engine is an integral part of the iPhone. However, last week the US Department of Justice began an antitrust probe into the way Google is set as the default search engine on the iPhone. This may be spurring Apple to move more quickly with the development of its own search engine.

Competing With Google

Google already has several search engine rivals, including DuckDuckGo and Neeva. However, their user numbers are minuscule compared to Google’s. These companies also license their index from Microsoft’s (MSFT) search engine, Bing. Apple, unlike smaller companies, would have the resources to index the web itself.

Apple has had difficulties building competitors to Google’s products before. Apple Maps, a competitor to Google Maps, had a myriad of problems when it launched in 2012, which forced some of Apple’s top leadership to resign. However, lawmakers may soon disrupt agreements between Apple and Google, and Apple may create a search engine out of necessity.

Apple’s Resources

Building a search engine to compete with Google will take talent, and Apple may be laying the groundwork to do this with its hiring practices. Two and a half years ago, Apple hired John Giannandrea, who was formerly Head of Search at Google. Apple said the hire was mainly to help with AI projects and the Siri virtual assistant, but Giannandrea did spend eight years in charge of the world’s most popular search engine and could help Apple build a competitor. Apple is also working to hire more search engineers.

Creating a platform on the scale of Google’s search engine will also take significant financial resources. Apple is expected to rake in $55 billion in profits this year, and has about $81 billion in net cash reserves. If any company has the financial fortitude to build the world’s next search engine, Apple does.

A Wave of Pre-Election IPOs

Car Insurer Root Goes Public

As the US presidential election approaches, many companies are going public this week to get ahead of what could be a volatile stretch for markets. This is typically what happens ahead of big elections. There are no US companies scheduled to begin trading next week, but this week has been a busy one for IPOs.

Root (ROOT), the car insurance startup, began trading yesterday. It offered 24,581,515 shares priced at $22 to $25 each. Shares traded above that range, giving the company a market valuation of about $7 billion, fully diluted. Goldman Sachs (GS), Morgan Stanley (MS), Barclays (BCS), and Wells Fargo (WFC) were underwriters for the deal.

Root is working to disrupt the auto insurance industry with its user-friendly mobile app. The company says people can sign up for Root insurance in as little as 47 seconds and that claims can be processed and paid within 24 hours. The Ohio-based company is active in 30 states and hopes to move into all 50 by early next year.

Insurance Tech Company MediaAlpha Makes its Debut

MediaAlpha (MAX), another insurtech company, also went public yesterday, selling 9.25 million shares at $18 to $20 each. However, the company's shares ended the day yesterday trading at $12.81. JPMorgan Chase (JPM), Citigroup (C), Credit Suisse (CS), and RBC Capital Markets are underwriters on the deal.

MediaAlpha leverages AI and data science to connect insurance companies to customers via digital advertising. The Los Angeles-based company made $19 million in income on $243 million in revenue for the six months ending on June 30.

Biodesix Lists Amidst Booming Demand for COVID-19 Diagnostic Tools

Biodesix (BDSX), a diagnostics company, also began trading on the Nasdaq yesterday. Biodesix offered 4,166,667 shares at $17 to $19 each. However, at the end of the trading day yesterday, the company’s shares were priced at $31.86. Morgan Stanley and William Blair were among the underwriters for the deal.

Biodesix sells six diagnostic tests, which are mainly focused on lung diseases. The company has also formed partnerships to develop COVID-19 tests. Additionally, Biodesix has created a return-to-work package for companies implementing new COVID-19 testing procedures.

Not-So-Breaking News

  • General Electric (GE) shares surged 9% yesterday on news the company beat expectations with its Q3 revenue and profit. The company’s aviation unit suffered during the period, but this was offset by strong results from its renewable energy and power business.
  • United Parcel Service (UPS) beat profit expectations yesterday and reported that its average daily package volumes in the US jumped by 13.8% as consumers continue to shop and do business from home because of the pandemic. The company is also planning to hire 100,000 new workers in anticipation of what could be the busiest holiday shipping season ever.
  • After reporting its earnings, shares of Tupperware Brands (TUB), the food storage company, rose 41% yesterday. The brand’s shares have climbed about 2,500% since mid-March. Consumers have continued to favor cooking at home this summer and fall, which is fueling demand for Tupperware’s products.
  • Boeing (BA) announced its fourth straight quarterly loss yesterday. The grounding of its 737 MAX jets and weak demand for air travel have hammered the company. The plane maker also announced it will cut thousands of jobs through the end of 2021.
  • French President Emmanuel Macron announced yesterday that France will enter a second nationwide lockdown starting on Friday in an attempt to control rising COVID-19 cases.
  • You probably already feel like you’re paying too much on your student loans—but do you know exactly how much you’re overpaying? Use our Student Loan Calculator to see how much you could save by refinancing your student loans with SoFi.

Financial Planner Tip of the Day

"If you have federal student loans, you may be wondering what to do: Should you continue taking advantage of 0% interest and no required payments until the end of the year—or should you refinance your education debt while rates are at historic lows? Read my post on the SoFi Blog to find out the pros and cons of refinancing right now."

Brian Walsh, CFP® at SoFi

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