Stock Market Commentary for 12/29/2020:
- The General Theme:
U.S. stocks had a record rally after President Trump signed a Covid-19 aid bill and averted a government shutdown. Investors are advised to look past the meager $600 direct payments to American households, and focus on the economic support this bill may provide to struggling businesses. Wall Street continues to anticipate a robust economic recovery in 2021. European markets cheered the start of Covid-19 vaccinations, and a post-Brexit trade deal with the U.K.
- Stock Talk:
– Travel Stocks Rally: American Airlines (2.55%), Norwegian Cruiselines (3.86%), and Carnival (4.2%) are among the travel companies that will receive government aid.
– Tech Retreated: Zoom Video (6.34%), Chewy (10.96%), and The Trade Desk (10.64%) were among the many hot pandemic stocks that slid in Monday’s trading.
– CAUTION: Investors have borrowed a record $722 billion against their investment portfolios through November. Sky-high margin debt tends to precede major market fluctuations, as seen in 2000 and 2008.
Here is Warren Buffett’s take on leverage.
- Coronavirus tracker: Per Johns Hopkins, the U.S. reported 160,604 new cases yesterday, and current hospitalizations are at 117,344. Over one million people in the U.S. have taken the vaccine.
– By Raymond Kanyo
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Top Investment Story #1: Qualtrics: Next Big IPO?
What is Happening?
Qualtrics filed to go public at a $14.4 billion valuation, after spinning off of tech behemoth SAP. The company is expected to go public sometime in January or February of 2021, under the ticker ‘XM.’ Is this yet another hot cloud software company you’ll have the urge to invest in?
Why does this Matter?
Qualtrics started off as a family business, but SAP bought it in 2018 for $8 billion. After the IPO, SAP will retain an 80% ownership stake in Qualtrics.
Qualtrics sells software that helps businesses measure how customers use their products, so the business can improve its offerings. The firm aims to take advantage of the surging demand for high-growth cloud software companies (think of Zoom, Twilio, Snowflake, and Datadog). The company believes that there is a $60 billion annual addressable market for its current product.
Learn more about what Qualtrics does, and why SAP paid $8 billion for it in 2018.
According to the filing, Qualtrics racked up revenue of $401.9 million in 2018, and $591.2 million for 2019 respectively- representing a year-over-year growth of 47%.
At its current IPO target valuation of $14.4 billion, Qualtrics is priced as if the stock appreciated 80% in the last two years. Rookie numbers, compared to some cloud peers like Zoom and Snowflake, who tripled or quadrupled this year. Based on the recent IPOs in this sector, retail traders will most likely have to pay a hefty premium to get a piece of this stock when it finally IPOs.
-By Raymond Kanyo
Top Investment Story #2: How Did We Do Without Theaters
What is Happening?
AT&T’s Warner Media released “Wonder Woman 1984” over the holidays. It was the firm’s first experiment with releasing a new title both in theaters, and via its streaming service ‘HBO Max.’
Why does this Matter?
As a result of this hybrid model, Wonder Woman set a pandemic-box office record of $16.7M. That is the headline AT&T is pushing for, however, the more impactful metric would be how many HBO Max subscribers streamed the premier.
AT&T has been expectedly vague with these numbers. The firm reported that approximately half of its retail subscribers, or about 3.5M households, streamed the movie on Christmas day. Retail subscribers only account for those who pay for HBO Max outside of their current cable package though. Some have speculated that this number alone would indicate that “Wonder Woman 1984” shattered its numbers from the “Woman Woman” movie of 2017.
Disney and Pixar also premiered “Soul” on Disney+ this week. Investors and analysts are still eagerly awaiting to hear the reports on their numbers. The film may have the potential to out-perform Wonder Woman, due to Disney+’s popularity, and the large target demographic of the film.
Theater chains and movie houses ought to be hopeful from this news. It is clear that there is a demand to enjoy new releases, and possibly return to theaters to do so? Although streaming services certainly captured box office audiences, it did not completely debilitate them. If firms such as AMC can last just a bit longer, perhaps they can survive the pandemic?
There was a lot of curiosity around how digital releases would impact new titles and traditional avenues of production. Although we have yet to get the whole picture, it appears that there is room for both to co-exist in the post-pandemic world.
– Written By Jack Dunne