Breakingviews - Corona Capital: Black Friday, JPMorgan’s new tower
NEW YORK/MILAN/LONDON/HONG KONG (Reuters Breakingviews) - Corona Capital is a column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.
- Walmart’s Black November
- JPMorgan’s building
NOVEMBER IS THE NEW BLACK. The pandemic is creating a million problems, but Black Friday isn’t one. Retail giant Walmart plans to spread its U.S. holiday sale, which typically happens the day after Thanksgiving, over several days in November, some of that online. One reason is to help keep stores clean and uncrowded.
That will make for a curious experiment in the science of shopping extravaganzas. Black Friday works on the principle that buyers come for a single blockbuster deal, and stock up on gifts for Uncle Mitch and Aunt Sally while they’re at it. What’s not clear is whether that creates new demand, or just reschedules buying that would have happened anyway.
This time round, investors can get a peek at what happens when a retailer tries out multiple fiestas, online and off. Shoppers may be too rational to take the bait. But with the company’s shares dramatically lagging Amazon.com, Home Depot, and the S&P 500 Index over the last six months, Walmart might as well give it a try. (By Lauren Silva Laughlin)
TOWER POWER. Finance is mobile these days, except when it isn’t. JPMorgan boss Jamie Dimon told reporters on Tuesday that even though only one-fifth of his New York employees are back in the office, he remains committed to a new $3 billion headquarters on Park Avenue. It’s contrarian, and basically in character.
Digital aspirations notwithstanding, JPMorgan still has a taste for old-world assets. It’s still selectively opening new branches, even though online banking has made them less necessary. Dimon, whose senior traders were called back as early as September, also says he favors an intelligent return to work.
He is probably onto something: the pendulum swung one way, but will partly swing back. Besides, some things don’t go out of fashion, like the thrill of being a bigger blot on the landscape than your rival. Dimon’s rockpile will be a clear 200 feet taller than Bank of America’s beveled tower just 10 minutes’ walk away. What better reason to keep building? (By John Foley)
MARKET POWER. UnitedHealth has a habit of beating earnings estimates, and the $315 billion company did it again in the third quarter as revenue grew 8%. The U.S. health insurer also raised its earnings guidance for the full year. While the pandemic has been good for UnitedHealth and its rivals – closed doctors’ offices and postponed surgeries mean they still collect premiums but shell out less on patients’ treatments – it’s also an illustration of something more durable.
The company is the biggest in a concentrated industry. For example, the individual insurance market in nearly every U.S. state is highly concentrated according to the Herfindahl-Hirschman Index, one measure of how competitive markets are. That allows high returns, and UnitedHealth’s year-to-date return on equity is nearly 30%. This may be unusually high, but the company’s 10-year stock performance underlines the broader point. Shareholders have made more than 10 times their money, including dividends, twice as much as owners of Google parent Alphabet over a decade. Maybe Washington’s lawmakers should look beyond Big Tech for their antitrust targets. (By Robert Cyran)
TWISTS AND TURNS. Infrastructure investors have spotted a pandemic opportunity. Blackstone and Macquarie are teaming up with Italian state arm Cassa Depositi e Prestiti to buy 88% of troubled motorway operator ASPI from Atlantia, controlled by the Benetton family. The consortium is looking to pay up to 10 billion euros for the stake, Il Messaggero reported.
Atlantia agreed in July to a government demand to relinquish control of ASPI but rejected the proposed financial terms. On Tuesday it said would consider a CDP-led offer. A deal would end a ferocious dispute with Rome following the fatal collapse of a motorway bridge in 2018. It would also mark the latest deal for CDP, which in recent weeks acquired a stake in exchange operator Euronext and became the largest shareholder of merged payments groups Nexi and Sia. With no other bidders likely to challenge CDP, Blackstone and Macquarie may get a bargain by jumping on the state bandwagon. (By Lisa Jucca)
KEEP CALM AND CASH IN. The creator of a popular app for meditation and sleep is looking to raise $150 million at a $2.2 billion valuation, more than twice its previous value, according to Bloomberg. Like Zoom Video Communications and Netflix, Calm is a coronavirus success story. The app, which features guided meditation exercises as well as sleep stories from celebrities like Matthew McConaughey, has seen a burst of engagement during the crisis, with almost 4 million downloads in April, well over twice as many as its nearest competitor.
That’s unsurprising, as insomnia and anxiety are rampant. Prescriptions for sleep medication in the U.S. jumped about 15% between mid-February and mid-March as the pandemic took hold, according to Express Scripts. And the pandemic has had a negative impact on people’s sleep and psychological state in China, according to a study published in Sleep Medicine. If traders could go long on anxiety, they would, and Calm may be the nearest thing. (By Anna Szymanski)
GLASS DARKLY. Europe’s semiconductor behemoth ASML made up for lost time in the third quarter. After a disappointing first half, when Covid-19 made it trickier to ship its chip-building kit to Asian customers, revenue grew by 33% year-on-year in the three months to Sept. 30. Peter Wennink, chief executive of the 144 billion euro group, reckons long-term trends like 5G mobile data and artificial intelligence will increase the need for his equipment, which uses ultraviolet light to transfer tiny designs onto chips.
That jars with his vision for 2021, however. Wennink expects revenue to grow by a “low double-digit” percentage, usually code for just over 10%. Analysts were hoping for almost 15%, going by the median Refinitiv estimate. ASML’s shares now trade at an 11% premium to the global semiconductor sector, compared with 29% on average over the past five years. Wennink’s optimism isn’t necessarily shared. (By Liam Proud)
SLUGGISH FASHION. ASOS’s pandemic boom may soon fizzle out. The online retailer reaped the benefits of having a captive market for selling its throwaway skirts and tops as lockdown forced high-street rivals to shut their doors. ASOS said on Wednesday that its full-year pre-tax profit surged to 142.1 million pounds in the year to Aug. 31, from 33.1 million pounds a year earlier. It also reckons there is more room for improvement.
Such optimism may be misguided. Consumers are facing a dramatic rise in unemployment. In Britain, which accounted for over a third of its 3.3 billion pounds of sales, a government scheme that covers 80% of the salary costs of furloughed staff will be dramatically scaled back at the end of October. Companies may decide to cull staff instead of signing up to the new, less generous, programme. Selling to customers who are having to watch every penny will be a much harder task. (By Aimee Donnellan)
DRESS FOR SUCCESS. Desperate times call for desperate outfits. Qantas Airways has launched a new line of expensive athleisure clothing designed by Australian Martin Grant, which features T-shirts, hoodies and cashmere sweaters, two months after it reported a net loss of nearly A$2 billion ($1.41 billion) for the 12 months to June.
This is not the airline’s first creative sales foray. In September, the company successfully sold off fully stocked booze trolleys from its retired Boeing 747 planes, after selling care packages containing business-class pyjamas. Flights to nowhere, including a seven-hour scenic journey over Australia’s Outback and Great Barrier Reef which takes off and lands at the same airport – sold out in 10 minutes. With international travel stalled and carriers bleeding cash, expect more creative forms of fundraising to come. (By Sharon Lam)
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