Company / Analytics

Analytics, 13 May 2020

Mid-Week Brief: Uber, Tesla, Aramco and Gilead

Uber in talks to acquire Grubhub: Three people with knowledge of the discussions said that Uber aims to create one giant player in food delivery as more people turn toward those services in the wake of the Coronavirus outbreak which has upended everything from the way that people are eating to how businesses must shift to find new growth. According to the New York Times, Uber recently approached Grubhub, the food delivery app, with a potential all-stock takeover bid. In response, Grubhub asked for two Uber shares for each of its shares. That would value Grubhub’s stock at more than $60 a share, pegging a deal at around $6.1 billion, or roughly a 25% premium to Grubhub’s closing price on Monday ($46.81). Shares of Grubhub surged 25% to more than $58 per share after a trading halt due to volatility, following the report of a potential takeover by Uber on Tuesday.

According to Yahoo Finance, in Q1 Uber Eats experienced major growth with gross bookings of $4.68 billion, up 52% from that same quarter one year ago. Grubhub, meanwhile, saw gross food sales increase to $1.6 billion, up from $1.5 billion in the same period last year. But Uber Eats had just 20% of the market share and Grubhub had 28% in March 2020, while DoorDash accounted for 42% of it. A merger of Uber Eats and Grubhub would undoubtedly help Uber gain more dominance in the on-demand food delivery space. The talks are still in process and could fall apart as the two are currently at odds over a takeover price. Uber stocks (UBER) gained 2.40% to close at $32.40 while Grubhub (GRUB) shares gained +29.07% (+13.60) to close at $60.39 at the close of trading on Tuesday.

Tesla is resuming production at the Fremont Factory: ‘If anyone is arrested, I ask that it only be me,’ Tesla CEO Elon Musk dared California authorities when he said Monday that the electric-car company was resuming production at its assembly plant in Fremont, Calif., even though it had not yet been cleared to do so by local health authorities. Despite the stock market crash, Tesla stock has held up incredibly well and trading near its all-time highs, and our recent analysis Tesla’s Q1 2020 earnings and its business model indicates Tesla is well prepared to weather the current storm. President Trump tweeted that California should let Elon Musk restart the Tesla factory and Musk also threatened to move headquarters to Texas.

The Fed has jumped into the corporate bond market: The Federal Reserve will start purchasing shares of exchange-traded funds that invest in bonds through its Secondary Market Corporate Credit Facility. The facility is one of several tools recently created by the Fed to improve market functioning in the wake of the coronavirus pandemic, which has led to substantial market volatility. The Fed said the “preponderance” of its ETF holdings will be in funds that primarily invest in highly rated U.S. corporate bonds, known as investment grade. The rest of the Fed’s ETF holdings will be in U.S. high-yield corporate bonds. The New York Fed hired BlackRock, a giant asset management firm with $6.5 trillion in assets, to serve as the initial investment manager for the secondary market facility.

Car sales are increasing and likely to increase. AutoNation, the United States’ biggest chain of new-car dealerships, announced Monday that auto sales had started to improve after a steep drop in the early days of the coronavirus outbreak. In the first 10 days of April, sales of new and used vehicles plunged by 50%. But in the final 10 days of last month, sales were off by just 20%, the company’s chief executive. While the auto industry is likely to see ups and downs for the rest of the year, consumers are still interested in buying new vehicles, to reduce their use of public transit or shared transportation to avoid the chance of contracting the virus as many people desire to have a ‘personal space.’ Nevertheless, AutoNation lost $232 million in the first quarter, compared with a profit of $92 million in the same period a year earlier.

Saudi Aramco’s net income shrunk by 25% in Q1 2020. However, the world’s largest oil company still earned $16.7 billion — an amount that may allow it to retain the title of the world’s most profitable company. Amin H. Nasser, the company’s president and chief executive, said in a statement that the coronavirus pandemic “impacted” the results, which he called “exceptionally strong” given the situation. The drop in net income is not surprising given the myriad of challenges that have destabilized the oil market since the beginning of the year.

Twitter Employees could work from home forever: Twitter CEO, Jack Dorsey told employees they would not be expected to return to the company’s offices and could work from home forever if they wanted. Twitter sent its employees home in early March to help stop the spread of the coronavirus, but Mr. Dorsey had previously said he wanted Twitter’s workforce to be more diversified around the world and that he welcomed remote work. The company expects to reopen its offices no sooner than September.

Gilead Sciences (GILD), the Big Pharma behind Covid-19 drug remdesivir struck licensing deals with drug manufacturers. Gilead struck licensing deals with five generic drug makers for production of its antiviral drug remdesivir in 127 countries outside the United States. Mylan (MYL) – the world’s largest generic drugmaker – is among them. Read more on our recent analysis of Gilead company, portfolio and stocks.

The Stock Market Could Take Another Tumble. A J.P. Morgan strategist recommends focusing on the stocks that are already beaten up—down at least 40%—but with solid balance sheets and in industries that aren’t structurally damaged by the coronavirus crisis, according to Barrons.

Europe has new rules governing state financial aid to companies struggling with Covid-19 crisis. In the new rules, The EU said Friday that “companies that were already in difficulty on 31 December 2019 are not eligible for aid.” The European Commission has so far approved almost 1.9 trillion euros ($2.06 trillion) in state aid measures related with the ongoing crisis, including a 7 billion euro package from the French government to Air France.

Facebook is compensating staff for PTSD. In a settlement, the social network agreed to pay $52 million to thousands of US content moderators over mental health issues. The complaint was brought by moderators who said they operated in unsafe workspaces.

The airline business model is getting worse. With air travel nearly shut down during a pandemic, major airlines have moved from big profits to bleeding money. For instance, Delta Air Lines said it will drop 10 more airports from its already skeletal network. Major U.S. airlines are reportedly losing $350 million to $400 million a day in payroll, rent, and aircraft maintenance expenses which far exceed their current income. And even though they are slashing schedules, they are averaging an anaemic 23 passengers on each domestic flight. Passenger traffic is down about 94% and half of the industry’s 6,215 planes are parked, according to Airlines for America, a trade group. If that is not enough, the Transportation Department has warned airlines for a second time on Tuesday that they must refund passengers for cancelled tickets after receiving about 20,000 consumer complaints in April, up from the 1,500 it receives in a typical month. Berkshire Hathaway Chairman and billionaire value investor Warren Buffett recently sold its entire stake of in the U.S. airline industry, worth over $4 billion in December. Here is our recent analysis of the impacts of Covid-19 in the airline industry.

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