MarketBites Daily Investment Commentary: $44B Deal Dominates Data | Facebook Acquires ‘Kustomer’

Stock Market Commentary for 12/01/2020:
  • Stocks edged lower in Monday’s trading, but the market still closed one of the strongest months on record. The MSCI World Index soared 13% in November- their best monthly performance ever. Shares of Moderna surged 20% on news that the company plans to request coronavirus vaccine clearance in the U.S. and Europe. Nikola cratered 27% on news that GM won’t take an equity stake in the EV maker. Zoom Video shares dropped 4.72% in after-hours trading..

  • Gold continued to slide, while Bitcoin soared to a new all-time high of $19,450/coin. Oil slumped as OPEC+ warned that the “immense challenges” caused by the Covid-19 pandemic, were likely to persist into 2021.

  • Coronavirus tracker: Per Johns Hopkins, the U.S. reported 144,727 new cases yesterday, and hospitalizations reached 93,265

– By Raymond Kanyo

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Top Investment Story #1: $44B For Data Dominance

What is Happening?

A landmark deal of S&P Global acquiring IHS Markit, would merge two of the largest data providers on Wall Street. The combined entity would be able to track almost any financial data, such as the price of wheat and oil, hundreds of thousands of shipping routes, data on credit default swaps, and indexes as infamous as the S&P 500. SPGI stock traded up 2.99% on the news.

Why does this Matter?

Financial data has exploded in past decades, as worldwide stock markets have expanded, and computer-driven investment strategies replaced human stock picking. S&P Global has been at the forefront of this financial data revolution. They provide bond ratings, market data, and benchmarking. Investors have been well rewarded, as the stock has surged over 866% since going public in 2011.

S&P hopes to diversify its revenue streams by adding IHS Markit. Markit’s lucrative market data and analysis services are what fuel everyday decision making on Wall Street.

“With a more diversified portfolio of assets and increased visibility (more recurring revenue thanks to IHS Markit) on earnings, we believe the combined entity can command a higher earnings multiple longer term.” – Oppenheimer’s analyst Owen Lau wrote in a note to clients. 
The deal isn’t expected to face regulatory issues in the United States. However, it will likely encounter some scrutiny from regulators in the U.K. and Europe.
The Takeaway:

Data is the lifeblood of financial markets. The combination of S&P Global and IHS Markit would create a financial data behemoth, with offerings that would be hard to compete against.

– Written by Raymond Kanyo

– Published in MarketBites Daily Newsletter

Top Investment Story #2: Facebook Buys Flashy CRM. ‘Kustomer’

What is Happening?

Facebook acquires Kustomer, and continues to uphold its reputation as an ‘active buyer’. The deal for the high-growth business software tool is believed to be just north of $1B.

Why does this Matter?

Facebook typically buys firms that sell, or are used by, the end consumer (such as Giphy and Instagram). Kustomer is a business software that seamlessly connects various forms of communication, and manages chatbots. Facebook hopes that the integration of the service will generate higher advertising revenues.

Kustomer already works well with other platforms Facebook owns, such as WhatsApp. The economies of scale are apparent between the CRM and the social media giant. CEO Mark Zuckerberg believes the acquisition will further the firm’s initiative of “social commerce”. The value-add from Kustomer could empower small businesses that rely on Facebook and its subsidiaries for e-commerce sales.

The Takeaway:

Facebook is improving its business suite offerings, in hopes of becoming the market’s premier e-commerce player. It will be interesting to see if the synergies from this acquisition are as impactful as some speculate.

– Written By Jack Dunne

– Published in MarketBites Daily Newsletter

Meet the Authors

Raymond grew up in Budapest, Hungary, where he played tennis for the Hungarian Junior Davis Cup team. At the age of 16, he received the Davis United World College Scholarship, which was established by legendary investor Shelby Cullom Davis, allowing him to attend the Taft Boarding School in Watertown, CT. After Taft, Raymond received a Presidential Scholarship to the Robins School of Business at the University of Richmond, where he studied Quantitative Economics and Finance. Raymond is a CFA Level III Candidate. Prior to joining Taylor Hoffman, Raymond worked at various financial institutions in the insurance, asset management, and financial consulting space. Outside of the office, Raymond enjoys playing tennis at ACAC and Westwood Country Club.

Raymond Kanyo
Product Manager & Investment Analyst

Jack graduated from the Robins School of Business at the University of Richmond with concentrations in Marketing and Finance in 2019. Prior to joining Taylor Hoffman, he worked in high-growth B2B SaaS marketing; assisting Fortune 100 firms to improve their web performance experience. A Long Island New York native, Jack’s hobbies include passionately supporting the Mets and Islanders, and he enjoys skiing whenever he can.

Jack Dunne
Investor Education Specialist
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