Are Investors Leery Of IPOs In 2016? Plus McDonald’s Is Adding 1,300 Stores…In China
April Fools! Okay, so Morning Brew didn’t buy the Wall Street Journal…sorry to get your hopes up. But hey, a Brew can dream. That may have been a joke, but this isn’t: this week’s Morning Brew quiz is live! Get all five questions right, and you could win an exclusive Brew shout-out and Brew swag—no kidding.
“The consensus in the room was we can’t do anything with this. This is way outside of our game. We were not a Silicon Valley company” — Former NBCUniversal chief Bob Wright. 20 years ago, NBCUniversal parent company GE had the opportunity to acquire Apple for $2 billion. Apple’s current market cap: $614 billion. Oops.
- U.S. stocks slipped a bit on Thursday—the March rebound has lost some steam in anticipation of today’s big employment report
- Japanese stocks fell well over 3% last night on worries that Prime Minister Shinzo Abe’s economic growth plan just isn’t working. The latest evidence: business confidence dropped sharply last quarter
Alternatives to Watch
- As it draws to a close, the first quarter of 2016 marks the largest drop in treasury yields in four years, as investors stuck to safe haven assets during a period of uncertainty for equity markets
- Lines formed outside Tesla’s stores worldwide as eager customers awaited their chance to grab the first $1,000 reservations for Tesla’s new Model 3 cars, which were officially unveiled last night. Shares were up slightly in anticipation
China Gets a Downgrade
If you read the Brew without any mention of China, did you really even read the Brew? Hey, don’t blame us for providing your daily update on the world’s second largest economy—this time, the news is big. Joining ratings agency Moody’s, Standard & Poor’s has cut China’s credit rating from stable to negative. Where’s the love? S&P cited a slower-than-expected move towards economic growth and increasing financial risk as the main culprits. We’ll let you in on a secret: people are scared about the state of China’s slowing economy. And to answer our opening question: no.
Anbang, Episode IV: Cancelled
For all the loyal Brewers out there, you’ve probably been on the edge of your seat (probably not, but we can hope) waiting for news on the Starwood Hotels bidding war. Remember that $14 billion bid from Chinese insurance giant Anbang earlier this week that had everyone thinking it had the acquisition in the bag? Well, that “guaranteed win” has been retracted, quite literally. Yesterday, Anbang withdrew its offer, pretty much handing Starwood over to Marriott. We can’t say we aren’t a little surprised ourselves, but perhaps the looming regulatory hurdles spooked Anbang for good (you’d better believe the largest ever Chinese purchase of an American company would have invited some scrutiny).
China Gets a Happy Meal
It’s all China, all the time here at the Brew. The number one fast-food chain in America, the world and probably the whole galaxy is looking for a new source of customers. So where is it going? You guessed it: China, where McDonald’s is planning to add nearly 1,300 stores over the next five years. Despite slower Chinese store sales in recent years, McDonald’s is betting on skyrocketing population growth and increased urbanization for future success. Plus, McD’s has a secret sauce: a new, healthier menu is emerging as a core strategy for building consumer loyalty in China, with the fast food giant’s main goal to make the nation its number two market.
Amazon Comes Through With Consumer Goods
Amazon has expanded its line of dash buttons. Cool, but what are dash buttons again? Glad you asked: they’re those Wi-Fi connected, push-button devices that allow you to buy products with the push of a button—literally (think the Easy Button, but for actually buying stuff). These handheld devices have been used in the past year mostly for household products (toilet paper, detergent—you know, the necessities), but Amazon is expanding its offering to some popular food and drink items, such as Red Bull and Kraft Mac n’ Cheese. Perfect for sleepy cheese lovers, and also perfect for Amazon, which is doing everything it can to make buying from Amazon so easy a caveman can do it.
- GE Capital wants off the list of too-big-to-fail institutions
- Airware snatches $30 million to sell complete drones to the Fortune 500
- Jay Z says firm that sold him Tidal inflated subscriber data
- IBM to buy Salesforce.com consulting specialist Bluewolf
- Monday: Consumer Spending (-); Pending Home Sales (+)
- Tuesday: Dave & Buster’s (+/-) Earnings; S&P Case-Schiller Home Price Index; Consumer Confidence (+)
- Wednesday: Micron (+/-), Lululemon (+), Carnival (+) Earnings; ADP Private Employment Report (+/-)
- Thursday: Weekly Jobless Claims (+/-)
- Friday: BlackBerry Earnings; March Unemployment Report; ISM Manufacturing Index; Consumer Sentiment; Consumer Spending; Motor Vehicle Sales
THE DEAL WITH IPOS
Initial Public Offerings—without them, how would you get a chance to invest in new, developing companies? Unfortunately, IPOs this year have been seeing a bit of a slowdown, and the second quarter might not be that much better. Here’s the scoop:
- Even though U.S. stocks have gained an impressive 13% in the past seven weeks, the same growth is not true of IPOs.
- In fact, only nine IPOs this quarter have pulled in a combined $1.2 billion—sound like a lot? Well it’s not. Dare we remind you of the first quarter of 2009, when two IPOs pulled in $830 billion by themselves?
- So what does this mean? Well, it could be a sign that in these current times, investors still aren’t that big on risk. Confronted with the choice to either stick with the status quo or subject itself to market volatility, pesky shareholders and the hassle of reporting earnings and financials, many companies are deciding to go it alone.
INTERVIEW QUESTION OF THE DAY
You have two ropes. Each takes exactly 60 minutes to burn. They are made of different material so even though they take the same amount of time to burn, they burn at separate rates. In addition, each rope burns inconsistently. How do you measure out exactly 45 minutes? (Answer)
BUSINESS TERM OF THE DAY
Contingent Convertibles — CoCos refer to a type of security similar to traditional convertible bonds in that there is a strike price—the cost of the stock when the bond converts into stock. However, what’s different here is the presence of an add price that’s even higher than the strike price, which the company’s stock price must reach before an investor has the right to make that conversion (known as the “upside contingency”).
FOOD FOR THOUGHT
2016 will be the first year ever that global smartphone sales growth will fall below 10%. But don’t worry smartphone producers, there remains a great market that as of yet has gone largely untapped: India.