Raytheon’s Stock Is Up 32% Since Election Day, Plus Why Google Is Paying Apple $3 Billion A Year

Morning Brew Logo

“America’s leaders must honor our fundamental values by clearly rejecting expressions of hatred, bigotry and group supremacy.”
CEO of Merck, Kenneth Frazier as he stepped down from Trump’s manufacturing council.

Market Snapshot

  • Major U.S. indexes bounced back on Monday.
  • The S&P finished up 1% after a strong day for tech and real estate.
  • China’s economic data showed slowing growth.
  • Bitcoin hit $4,300.

4% Growth, to be Pacific

There are few things that rile up a nation like 4% annualized GDP. That’s why for Japan—the world’s third-largest economy—it’s time to get out the sparklers.

Recently, Japan is no stranger to economic expansion. This marks the sixth straight quarter of GDP growth, its longest streak since 2006.

But for an economy which is typically driven by automobile and smartphone exports, it’s interesting to see Japan rallying this quarter behind increased household spending and domestic investment.

Why so interesting?

If you didn’t know, Japan’s population has an aging problem. And not the type a little botox can fix. At 1.4 births per woman, Japan’s fertility rate ranks 184th in the world. Combine that with top-notch healthcare, and you’ve got a country where people are living longer and fewer births occur.

The problem is so severe that Japan’s population of 127 million is expected to shrink by one-third over the next five decades.

So how does all this tie back to domestic consumption? Well, the older people are, the less they work and therefore the less disposable income they have to spend. Case in point, with 25% of Japan’s population over 64-years-old and 86% of employers struggling to fill vacancy gaps, economists expect consumption to decline.

So what’s driving all this spending now?

If you remember, we said Japan has only recently experienced stronger economic growth. That’s because the Japanese economy suffered from nearly two decades of deflationary prices.

But now, Japan’s on the rebound. Prices have stabilized, stocks sit at record highs—a sign of perceived wealth for spenders—and wages are above historical standards.

The impending dangers of an aging population are still very much on the horizon, but for now, it just might be time to splurge on that new PS4.

Fire, Fury and Profits

At least one company doesn’t appear worried about the possibility of military conflict between the U.S. and North Korea—Raytheon (+0.55%) The third-largest defense contractor in the U.S. added the former deputy Defense Secretary Robert Work to its board of directors. Work is widely known as an expert in global security and his hiring comes at an opportune time.

Since 93% of Raytheon’s $24 billion in revenue is derived from defense contracts, government policy has an outsized effect on the company’s bottom line. And President Trump is showing he’s a willing customer by proposing a $52 billion increase in defense spending in his preliminary budget.

Good thing for Raytheon. Its stock has shot up 32% since election day and will likely see a windfall from a U.S.-Saudi arms deal worth $350 billion.

It’s a grim business, but for Raytheon, business is far from grim.

Friends With Benefits

New research shows Google (+0.95%) is paying up to $3 billion in licensing fees to remain the default search engine on Apple (+1.50%) products—up from $1 billion just three years ago. Sure, that might seem insignificant next to Apple’s $214 billion in yearly revenue, but there’s more to this story.

With nearly all of these licensing fees amounting to pure profit, that $3 billion represents roughly 5% of Apple’s yearly operating income and over 10% of Apple’s Services revenue.

In case you missed it, Services emerged as the unsung hero in Q3. While Apple Music subscriptions got most of the credit, this new data shows licensing fees played a bigger role than we thought.

So, how does Apple get away with charging more? iOS devices drive 50% of Google’s mobile search revenue. That’s how.

Free Bird

Angry Birds is catapulting into unfamiliar territory.

Rovio, creator of the hit video game and the reason you missed Thursday’s lecture even though you were at Thursday’s lecture, is considering an IPO as early as September to raise $400 million at a $2 billion valuation.

The company is flying high following a year that saw 34% revenue growth thanks in large part to the Angry Birds Movie (on repeat at Brew HQ), which grossed $350 million at the box office.

But Rovio will have to diversify and improve upon its offerings if doesn’t want to go the way of King Digital Entertainment. The Candy Crush creator turned stale after its IPO and was acquired for a 20% discount by Activision Blizzard (+1.89%).

What Else Is Happening…

  • Activist hedge fund Jana Partners announced a $3 million stake in Blue Apron.
  • TV producer Shonda Rhimes joined Netflix (-0.23%) after 15 years with ABC.
  • VF Corp, parent company of Vans and The North Face, acquired Williamson-Dickie Mfg. for $820 million.
  • The Philippines suspended Uber from operating in the country for one month.

Economic Calendar

  • Monday:
  • Earnings: No Events Today
  • Economic Events: No Events Today
  • Tuesday:
  • Earnings: Coach, Home Depot, Urban Outfitters
  • Economic Events: Retail Sales, Import and Export Prices, Housing Market Index
  • Wednesday:
  • Earnings: Cisco, Perry Ellis, Progressive
  • Economic Events: MBA Mortgage Applications, FOMC Minutes
  • Thursday:
  • Earnings: Alibaba, Gap, Wal-Mart
  • Economic Calendar: Jobless Claims, Industrial Production, E-commerce Retail Sales, Money Supply
  • Friday:
  • Earnings: Deere & Co, Estee Lauder, Foot Locker
  • Economic Calendar: Consumer Sentiment, Baker-Hughes Rig Count

[protected-iframe id=”115c3d42caa3bc64dded5286616da033-97886205-61771510″ info=”https://www.morningbrewdaily.com/form.js” ]

Water Cooler

(The Great American Eclipse) By the Numbers

On August 21st, millions of Americans will gather to view a once-in-a-decade phenomenon: a total solar eclipse. If you need a refresher from 8th grade astronomy, a solar eclipse occurs when the moon crosses between the earth and the sun, completely blocking out sunlight. And if you live in the so-called “path of totality” you will see the earth go dark for two whole minutes. We’ve shared some of the most interesting eclipse facts below, but beware: the numbers are so blinding you shouldn’t stare too long.

18 months—how often you can see a total eclipse from at least one location in the world.

12.25 million—people that live inside the path of totality.

4.62 million—estimated number of people traveling to the path of totality for Aug 21st.

418%—the surge in flight costs in select cities located within the path of totality.

$20 million—estimated amount visitors will spend in Nashville during the three-day event.

6 seconds—All the time it took for 200 first-come, first-serve Oregon State Park campsites to sell out.

The Breakroom

[protected-iframe id=”a638303a18608097f8123734cf805f9e-97886205-61771510″ info=”https://static.apester.com/js/sdk/v2.0/apester-javascript-sdk.min.js” height=”463″ class=”apester-media”]

Question of the Day

A box contains three pairs of blue gloves and two pairs of green gloves. Each pair consists of a left-hand glove and a right-hand glove. Each of the gloves is separated and thoroughly mixed together with the others in the box. If three gloves are randomly selected from the box, what is the probability that a matched set (i.e., a left- and right-hand glove of the same color) will be among the three gloves selected?

(A) 3/10

(B) 23/60

(C) 7/12

(D) 41/60

(E) 5/6

(Give Up?)

Who Am I?

  1. I am the cofounder and CEO of the Google of China.
  2. My company is the largest search engine in China, with over 70% market share.
  3. My site is ranked 4th on Alexa’s top 500 sites.
  4. In 2014, the UN Secretary General appointed me as co-chair of the Independent Expert Advisory Group on Data Revolution for Sustainable Development.

(Any guesses?)

Stat of the Day

3 billion

Luis Fonsi’s Despacito surpassed 3 billion views on Youtube, making it the most watched video of all time. Since its release on January 12th, the music video has raked in nearly 15 million views daily, or 170 views per second.