Thursday,
February 11, 2021

Market recap

Dow Jones

31437.80

+61.97 (+0.20%)

S&P 500

3909.88

-1.35 (-0.03%)

Nasdaq

13972.53

-35.16 (-0.25%)

Oracle

$63.29

-$0.38 (-0.60%)

Heineken

$51.29

-$2.53 (-4.70%)

Coca-Cola

$49.60

-$0.10 (-0.20%)

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Top Story

The Sale of TikTok’s US Business Is on Hold

Plans for Sale to Walmart and Oracle Have Been Shelved

TikTok, the popular video sharing app, was preparing to sell its US operations to Oracle (ORCL) and Walmart (WMT). Now these discussions are on hold.

TikTok is owned by the parent company ByteDance, and allows users to create, share, and watch short video clips. It is powered by sophisticated AI which delivers users personalized content. This technology has led the app to surge in popularity. According to recent data, TikTok has 689 million monthly users internationally and 100 million monthly users in the US. It is valued at about $50 billion.

A Quick Review

TikTok has been caught in the crossfire as tensions between Washington and Beijing rise. In the fall of 2020, former president Trump signed an executive order labeling TikTok as a national security threat. Then, with another executive order, the former president threatened to ban the app in the US unless it sold its US operations to a domestic company. The Trump administration was concerned that the Chinese government would have access to Americans’ data collected via TikTok, and that this would pose security risks.

A number of US buyers scrambled to be part of the TikTok deal last fall. Microsoft (MSFT) was looking like a front runner, but ultimately Oracle and Walmart came out ahead. Now, though a sale of TikTok’s US business could still take place, it will likely look different than the agreement proposed in September.

The Biden Administration’s Plans

The Biden administration is conducting a review of potential security risks related to China-based tech companies. The plan to require TikTok to sell its US operations has been shelved for the time being.

White House Press Secretary Jen Psaki said yesterday, “I will note, broadly speaking, that we are comprehensively evaluating the risks to US data including from TikTok and will address them in a decisive and effective fashion.” TikTok’s many users, as well as leaders in the US social media landscape, will be anxious to see how the Biden administration’s decisions impact TikTok’s future in the US.

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Beachbody Makes Plans to Combine with MYX Fitness and Go Public

A Three-Way Merger

Fitness and nutrition company Beachbody is making plans for a three-way merger. Beachbody will join forces with MYX Fitness, which makes stationary bikes, and blank-check company Forest Road Acquisition Corp. (FRX).

The combined company, which will operate using the Beachbody name, is valued at almost $3 billion. Once the deal closes, the new company will trade on the New York Stock Exchange.

SPACs vs. IPOs

A special purpose acquisition company, also known as a SPAC or a blank-check company, is created to raise capital through an IPO in order to buy an existing company. SPACs usually need to find an acquisition target within a certain period of time, often two years. A private company will then go public by merging with a SPAC rather than going through their own traditional IPO.

Last November Forest Road Acquisition Corp. raised $300 million in an IPO, and since then it has been looking for companies seeking mergers. After receiving interest from at least 50 businesses, it has settled on merging with Beachboy and MYX Fitness. Forest Road’s team includes former TikTok CEO Kevin Mayer as well as Tom Staggs, a former CFO and COO of Disney (DIS).

Riding the Home Fitness Wave

Forest Road decided to merge with Beachboy and MYX because these companies have successfully capitalized on the at-home fitness boom which has taken place during the pandemic. Beachbody, which provides fitness streaming content as well as meal plans, has gained popularity during the pandemic and now has over 2.6 million paid digital subscribers. MYX has sold more than 27,000 bikes since they rolled out the product a year ago.

Analysts estimate that the new company will generate over $1.1 billion in revenue next year. Even when more of the population is vaccinated and some return to gyms, it is predicted that many people will stick to at-home fitness habits formed during the pandemic. This could help the new company and other at-home fitness businesses continue to see growth.

A Tale of Two Beer Companies

Varied Responses to Changing Customer Habits

The pandemic has upended consumers’ drinking habits. Bars and restaurants have been shuttered and events have been canceled. Meanwhile, online alcohol sales and retail alcohol sales have climbed.

These trends have impacted beer brewers in different ways. Amidst so much uncertainty, companies have taken a variety of approaches to staying afloat during COVID-19. Recent data from Heineken (HEINY) and Carlsberg (CABGY) show the outcomes of different responses to pandemic conditions.

Heineken Makes Plans to Restructure

Heineken, the second-largest beer brewer in the world, recently reported that its sales fell by 8% during the three months ending in December 2020 compared to the same period a year prior. Though sales for the company beat expectations over the summer, they plummeted as the weather turned colder and new restrictions were put in place in important markets like the UK.

The Dutch company says it will likely take until 2023 for its operating margins to return to pre-pandemic levels. In order to survive this period of gradual recovery, Heineken is currently in the process of redesigning its structure in order to reduce overhead costs by about $2.4 billion. This plan will include cutting about 9% of its workforce—roughly 8,000 jobs.

Carlsberg’s Early Cuts Help Lift Margins

Carlsberg (CABGY), which is the world’s third-largest beer brewer, has taken a slightly different approach to dealing with pandemic conditions. Though it also saw a drop in sales, the Denmark-based company was able to increase its operating margins in 2020 compared to 2019 by restructuring early. China is Carlsberg’s largest market. After the company watched COVID-19 impact its sales there in early 2020, it quickly slashed its overhead costs.

Anheuser-Busch InBev (BUD), the largest beer brewer in the world, will share its results later this month, giving another view at how the beer industry has weathered the pandemic and what the coming year could bring for the sector.

Not-So-Breaking News

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Brian Walsh, CFP® at SoFi

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