Monday Jul.27, 2020

📄 Year of the SPAC

"_What the SPAC was that?_"
"_What the SPAC was that?_"

Hey Snackers,

If you don't have $250K to leave this planet on a Virgin Galactic spacecraft, at least you can smell like you did: for $29, the NASA-researched Eau de Space fragrance will have you smelling like you just stepped off the lunar surface. Expect notes of "gunpowder, seared steak, raspberries and rum" (delicious).

The market ticked down for the week, with the tech-heavy Nasdaq index posting the biggest loss. Earnings from Amazon, Apple, and Alphabet are coming up on Thursday.

BTW: Our Snacks Daily 15-minute podcast is in Apple's and Spotify's top 100 overall (nice). Check it out here in Apple or here on Spotify.

SPAC

Bill Ackman's SPAC raises $4B for a company without a company

Up there with quarantinis... Another 2020 summer trend: SPACs, or Special Purpose Acquisition Companies. SPACs (fun to say) have been around for years, but gained popularity recently as a way for companies to go public. Private companies can take their stock public (and make it available to retail investors like you and us) in a few ways:

  • Initial Public Offering: The company creates new shares of itself then hands things off to investment banks. They decide the stock's price, then sell shares to the 1st batch of public investors. Most companies go public the IPO route.
  • Direct listing: No new shares are created (#nonewfriends). Existing shares held by the founders, early investors, and employees simply become public, with supply/demand on exchanges like NYSE or Nasdaq determining the price. Slack and Spotify did this recently.
  • Acquisition: A private company gets eaten up by a public one, and becomes public by association. Postmates just did this by selling to Uber.

And then there's the SPAC way... This falls under Acquisitions, but it's much edgier (you can tell by the name). SPACs go through an IPO, but have no commercial operations. Their sole purpose is to one day acquire a real company and voila, that acquired company becomes public.

  • SPACs are AKA "blank check" companies: SPACs collect cash from new investors in the IPO, even though those investors don't know what they'll end up owning. The SPAC has 2 years to buy a real company, or the $$$ gets returned to the investors.
  • Pershing Square Tontine: Famous investor Bill Ackman just took this SPAC public in the largest-ever blank-check IPO (it raised $4B). Ackman said Pershing might buy a “mature unicorn” 6 times in the filing. So much detail.

SPACs aren't real companies, but one day they could be... Investing in a SPAC is like outsourcing money to be invested by a manager and having no control over what they'll buy (FYI, Virgin Galactic and Nikola recently went public via-SPAC). But if nothing (or an underwhelming company) gets bought, the SPAC stock could fall in value. There's a risk that the Kinder Surprise egg could be empty — a risk with Ackman's new SPAC stock, too.

Highs

Who's up...

Pour one out for Sam Adams... There's a new koozie favorite at the Pats tailgate. Boston Beer shares spiked 26% after revealing that profits more than doubled from the same quarter last year. Sales soared 42% thanks to Twisted Tea and Truly Hard Seltzer, while OG Sam Adams dipped (no bars? No kegs). Based on its hard seltzer/tea/lemonade success (non-beers reportedly make up 3/4 of the company's sales these days), Boston Beer should rebrand to 'Boston Booze.'

Ludicrous Mode gains stamina... For the 1st time ever, Tesla has posted 4-straight profitable quarters in a row. Sales were slightly down this corona-conomy quarter, but Tesla managed to drive home a profit by selling $428M worth of environmental credits to non-EV carmakers. Also, the full-year profit means Tesla could now be invited into the prestigious S&P 500 club. Tesla has a tiny share of the global car market — but its stock has soared 230% this year, making it the most valuable carmaker on Earth.

Lows

...and who's down

Going the way of Blockbuster... 2020 summer blockbusters. AMC pushed its US theaters reopening date (again) to mid-August. The world's largest movie theater chain didn't have much choice, after studios delayed releases of their biggest blockbusters: Disney pushed Mulan indefinitely and delayed Star Wars and Avatar by a year. Christopher Nolan's much-hyped Tenet was also pushed to TBD status. The longer theaters and studios stay closed, the closer AMC gets to bankruptcy.

Getting ghosted... Snap stock plunged 11% on news that its quarterly loss grew 28% from a year ago. Investors screenshotted that big L, but it wasn't all bad news for the little ghost: sales popped 17% and daily active users jumped 4% from the April quarter to 238M. Snap blamed its loss partly on long-term investments. It recently intro'd "Mini" apps in Chat, headlined by a partnership with meditation app Headspace. If those succeed, Snap could boost engagement and ad bucks with its own (Mini) app store.

What else we’re Snackin’

  • Search: America's top trending Google searches over the last decade, in a timelapse video (2018 = Fortnite + Baby Shark takeover).
  • Feel: 4 daily practices that foster emotional resilience, according to psychologists.
  • Wonder: The Pentagon will report some of its UFO findings to the public — think: “off-world vehicles not made on this earth” (intense).
  • Rest: 12 tips to help you fall asleep faster — no more late-night "doom scrolling."
  • Learn: What a market "selloff" means for young, long-term investors — playing the long game could mean more time to recover from downturns.

🍪 Thanks for Snacking with us! Want to start getting Snacks daily? Sign up here for our daily market newsletter.

This Week

Disclosure: Authors of this Snacks own shares of Amazon, Apple, Alphabet, Uber, Shopify, Spotify, Snap, and Disney

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With Gucci responsible for roughly two-thirds of the company’s profit, the ongoing struggles of the brand are weighing heavily on the bottom line: the company expects recurring operating profit to drop 40-45% in the first six months of the year.

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The crux of the FTC's argument lies in the scope of the "accessible luxury" handbag market, where Tapestry competes with Michael Kors, with the FTC saying the following:

Where Tapestry and Capri most vigorously compete against one another – mainly between Tapestry’s Coach and Kate Spade brands against Capri’s Michael Kors brand – is in the “accessible luxury” handbag market. Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices.

The deal would eliminate fierce head-to-head competition on many important attributes including on price, discounting, and design. Tens of millions of Americans that purchase Coach, Kade Spade, and Michael Kors products could face higher prices

While Capri and Tapestry are two of the largest players in this market, winning an antitrust case won't be so straightforward, as consumers have other options at similar price points, including Marc Jacobs (owned by competitor LVMH), Tory Burch, Cuyana, and Mansur.

FTC Moves to Block Tapestry’s Acquisition of Capri

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The crux of the FTC's argument lies in the scope of the "accessible luxury" handbag market, where Tapestry competes with Michael Kors, with the FTC saying the following:

Where Tapestry and Capri most vigorously compete against one another – mainly between Tapestry’s Coach and Kate Spade brands against Capri’s Michael Kors brand – is in the “accessible luxury” handbag market. Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices.

The deal would eliminate fierce head-to-head competition on many important attributes including on price, discounting, and design. Tens of millions of Americans that purchase Coach, Kade Spade, and Michael Kors products could face higher prices

While Capri and Tapestry are two of the largest players in this market, winning an antitrust case won't be so straightforward, as consumers have other options at similar price points, including Marc Jacobs (owned by competitor LVMH), Tory Burch, Cuyana, and Mansur.