Changes for Google and Apple in South Korea

South Korea’s New Rule Could Hurt Sales

Google (GOOGL) and Apple’s (AAPL) lucrative positions in the South Korean app market may be at risk after a new bill passed requiring the two tech companies to allow alternative payment systems for in-app purchases.

The bill by South Korea’s National Assembly marks the first time a country has passed a rule which directly impacts the control Google and Apple have over apps that sell products on their platforms. The bill will become law once President Moon Jae-in signs it, which he is expected to do soon. By passing the law the South Korean government is trying to prevent the likes of Google and Apple from having monopolies with their in-app purchasing systems.

Tech Companies Face Hefty Fines for Noncompliance

The rule also prevents the tech companies from delaying approval of apps or deleting them as a way to retaliate when conflicts about payments arise. Companies which do not meet the new standards could face fines of as much as 3% of their revenue in South Korea. Similar bills in Europe and the US are being considered. South Korea hopes its law will encourage worldwide regulations.

The bill was welcomed by South Korea’s internet tech companies, startups, app makers, and content developers, who say it's a big step toward making the tech industry fairer for app companies. In the second quarter, Google’s Play store accounted for 75% of mobile apps downloaded across the world, while 65% of the in-app purchases and subscriptions were made through Apple’s app store.

Apple and Google’s Response

Apple and Google argue that opening up their platforms to third-party payment services, which circumvents their ability to get a commission, will hurt the services for consumers. When the bill was moved to a final vote in August, Apple said it was worried users who made purchases through other payment systems would be up against a bigger chance of fraud. Meanwhile Google said that making money off the apps enables it to keep its Android operating system free and provide developers with access to legions of users.

South Korea’s new rule is just one of the many moves regulators and lawmakers across the world are making against tech companies. While sales in South Korea are a small portion of Google and Apple’s overall revenue, if countries follow suit, it could be something investors should pay attention to.

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Hotel Property Stocks’ Rebound Could Be at Risk

Business Improves in Second Quarter

Hotel property stocks including Host Hotels & Resorts (HST), Pebblebrook Hotel Trust (PEB), and Apple Hospitality REIT (APLE) have underperformed the broader market recently, but signs are emerging that business is improving. Cumulative funds from operations, a key earnings metric in commercial real estate, turned positive in the second quarter for the first time since early 2020. Meanwhile, Apple Hospitality and Pebblebrook reported their first quarterly profits since late 2019 and Host’s losses narrowed significantly during the second quarter.

But that rebound may be hurt by rising COVID-19 cases, as the Delta variant continues to spread in many parts of the country. That could slow down the recent boom in leisure travel and could prevent a rebound in business travel.

REITs See Improvement

Hotel REITs (real estate investment trusts) were among the hardest-hit sectors during the pandemic. Their fortunes are directly tied to how many hotel rooms are rented out, so they get battered when individuals are not traveling for work or leisure. Many REITs own hotels and pay companies like Marriott International (MAR) management fees to run the properties.

REITs’ occupancy rates started improving earlier this summer as people ventured out again, and many of the properties which were shut during the pandemic reopened. Since January, hotel-per-room revenue increased 50%, and average occupancy rates stood around 64% according to data from early last month. Though some markets including San Francisco and Washington DC are still struggling with low occupancy rates.

Recovery Could Be Bumpy

Despite the recent improvements, investors appear to be anticipating a bumpy recovery for the sector. While REIT stocks benefited from the COVID-19 recovery rally, more recently shares have been under pressure over concerns about the Delta variant. Pebblebrook stock is over 10% lower since the end of April. The performance of the stocks and the recovery for the industry depends on the Delta variant ebbing and business travelers returning, which are two big uncertainties.

The hotel REIT sector is underperforming as concerns about COVID-19 and business travel increase. While some may see a buying opportunity, others aren’t so sure. It will be interesting to see how the market plays out as we move through the remainder of the year.

Satellite Launch Startups Draw Investor Interest

SPACs Eye Satellite Launch Companies

Jeff Bezos and Richard Branson’s race to send people to space gets a lot of attention, but the companies which launch satellites into space deserve a look too. That’s what a number of SPACs, or special purpose acquisition companies, appear to think. SPACs are merging and taking many satellite-launching companies public, including Virgin Orbit, Rocket Lab (RKLB), and Astra (ASTR).

Underpinning the interest in these satellite-launch companies are big advancements in miniaturization, which has reduced the cost of making satellites. Launching constellations of small satellites into low orbit provides new opportunities for companies like SpaceX, which plans to bring broadband internet to far-flung places.

It is potentially a big market. Of the $1 trillion Wall Street projects that the space market will earn by 2040, nearly half could be from satellites.

Rocket Lab Ahead of Rivals

Satellite companies which need a launch partner often turn to SpaceX’s Falcon 9, which offers a low price per kilogram. Satellite companies do have to compete to get space aboard the shared launcher. If the startups could provide a dedicated service at a cheap enough price, it could tip the market their way.

As it stands, Virgin Orbit is the cheapest alternative, launching rockets 35,000 feet off the ground from a 747 aircraft. The startup has completed two successful launches. Astra, which already counts NASA as a customer, has failed in three consecutive test launches, while Rocket Lab has already sent over 100 satellites into space.

Competition Is Fierce

The satellite-launch companies may be attractive to some investors because they are trading at lower valuations than their spaceship counterparts. Rocket Lab currently trades around 28 times the earnings it forecasts for 2025, while Astra is trading at four times, and Virgin Orbit is at around six times. However, competition is fierce among the startups.

Space tourism is no longer a fantasy, providing investors with different ways to play the market. SPACs have been focusing their attention on the satellite-launch companies. It will be interesting to see how the market progresses as more money pours into it.