The Top MarketBites Investment Stories for September 29th, 2020
U.S. stocks continued their bullish trajectory on Monday with banks and energy stocks leading the way. HSBC increased over 10% yesterday after its biggest shareholder raised its stake. Both banks and energy companies are cyclical businesses that tend to perform better during an economic recovery. The advance in global stocks was broad, instead of tech-focused, a sign that optimism about global growth is returning. The market is also benefitting from renewed stimulus optimism and continued liquidity from the Federal Reserve.- The first Presidential Debate will be held today from 9 to 10:30 pm.- U.S. House of Representatives unveiled a new, $2.2 trillion coronavirus relief bill – (click here)Missed our newsletter on stock market bubbles? – (click here)
TOP STORY 1: Greed, Ego, Power: Welcome to the world of oil mergers
Shale drillers Devon Energy and WPX Energy saw their shares rally 11.2% and 16.3%, after announcing an all-stock merger on Monday. Even after Monday’s bounce both energy companies are down over 60% for the year.
For Devon Energy, the merger reduces the company’s exposure to federal land – cushioning it against possible election risk. For WPX Energy the merger improves credit conditions and leverage. The combined company estimates to cut $575 million of combined expenses. They are also promising a very attractive dividend. They promise to pay out up to 50% of excess free cash flow in dividends, which would be on top of a fixed dividend of $0.11 per share, Devon’s current rate.
Analysts hope that this merger is a step in the right direction in an industry with hundreds of publicly traded companies that are ripe for deal-making. However, executive ego and greed can continue to impede further consolidation. It turns out that it pays extremely well to be the CEO of an oil and gas company. In the last decade, top executives at the 15 largest oil and gas producers received more than $2 billion in compensation. So it is understandable why these CEOs want to hold onto their positions even when it’s not in the best interest of the shareholders. Is the Devon-WPX merger an exception? Time will tell…
TOP STORY 2: Google is ready to collect: Next year Google will enforce the 30% revenue share agreement it has with all apps that run on Android
Google is going to start enforcing rules that require app developers distributing Android software on the Google Play Store to use its in-app payment system starting in September of 2021. Google’s Android Play Store takes a 30% revenue cut of all app transactions similar to Apple’s App Store.
Why does this Matter?
Apple might be a big American player, but Google’s Android controls 75% of the global smartphone market. There are a lot of companies like Spotify, Netflix, Fortnite, and Tinder that built a massive business via their smartphone apps. Apple’s and Google’s 30% revenue share policy is a massive fixed cost to these businesses. In-app payments are quick and user friendly, but companies like Spotify are willing to sacrifice that to avoid paying the 30% cut. Google’s move to enforce the 30% policy starting next year further solidifies the existence of this practice.
Google’s decision to enforce the 30% revenue share arrangement hasn’t been met with as much public outrage as Apple’s similar policy. Why? Google’s operating system is inherently more open-source than Apple’s IOS. This means that you can download applications to your Android outside of the Play Store. For that reason, this news might not impact app developers as significantly as Apple’s policy. Still, the move by Google confirms how much influence the tech-giant has over companies, industries, and even the political system. (It is pretty cocky to enact a policy like this when a month ago Apple CEO Tim Cook had to testify in front of the House Judiciary Committee over the very same policy.)
DEAL & IPO WATCH:
– Palantir IPO on Wednesday, shares priced around $11.50
WHAT ELSE IS HAPPENING:
WHAT’S MOVING AFTER-HOURS:
Abbott Laboratories — $ABT is trading 1.86% above closing price in after-hours trading. This movement comes directly off the news of an additional 150M additional COVID tests that are set to hit the market in the coming weeks.