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Capital Markets

Tech stock options just aren’t what they used to be since the boom years went bust this year. Gone are the days when early hires could make a small fortune exercising options or selling some of their shares into a public listing. These days employees looking to cash out will have to wait a bit longer while the U.S. IPO market tries to regain its footing. 

One company defying the trend is Instacart, which plans to go public sometime before the end of the year. They may have a successful exit as long as they can keep showing profits and other profitable companies may follow suit. For the rest still running in the red, it’s going to take time before markets regain interest. That’s little solace for those who may have exercised their options thinking the recent stock market rebound was a sign of things to come. 

Chamath Palihapitiya, considered a bellwether for SPAC issuances, had to push back two mega-mergers this month. But still, special purpose acquisition companies (SPACs) have seen a slight uptick in interest with seven new mergers announced in the first sweltering week of August. That’s better than July’s single IPO raise of $100 million. It’s unclear when they’ll complete their acquisitions.

Meanwhile, the China IPO market hit nearly $58 billion in the first seven months of 2022, a new record for the country. Five IPOs have breached ‘unicorn’ status crossing $1 billion valuation, with one more waiting in the wings. Southeast Asia is also on the move as the New York Stock Exchange (NYSE) collaborates with SGX, the Singapore exchange. John Tuttle, Vice Chairman of the NYSE said in a CNBC interview that they are looking for ways to not only cross-list Singapore-listed firms, but also to find other avenues for listings.

Media

Back in the United States, the streaming wars are heating up as the Walt Disney Company racked up 221 million customers, outpacing long time market leader Netflix. In an effort to boost revenues even further, Disney+ and Hulu will try out an ad-free premium membership ($10.99/month), a 38% increase over the standard subscription that will now include ads.

Amazon is beefing up its streaming sports coverage this year with exclusive rights to Thursday Night Football (TNF), hosted by acclaimed sportscaster Al Michaels. To widen their viewership beyond the typical NFL and NCAA, Amazon is also offering a simultaneous stream hosted by the sports-comedy team Dude Perfect, known for their trick shots and challenges. Another potential deal with DirecTV may bring TNF to restaurants and bars.

Fans without an Amazon subscription can subscribe to the NFL’s own streaming service, which will now feature live out-of-market preseason games, along with live local and primetime regular-season and postseason games on phones and tablets only. That’s in addition to live local and national audio for every game.

Technology and Innovation

This summer’s heat wave hasn’t spared early-stage companies. As equity markets slumped and IPOs dried up, so did pre-IPO funding rounds. And even when they do occur, entrepreneurs are dreading the lower multiples that might lead to a down round where they are valued at less than what they were before. The rocky economy doesn’t help convince investors that it’s a good time to take on risk either.

In order to capture more of the value in the startup process, major venture capital investors are figuring out how to effectively leverage niche startups to create real world solutions.

In the “traditional” tech world, work-from-home may become as antiquated as a wired mouse. Apple wants its workers back, in person, three days a week by Labor Day. The goal — increase productivity. The question — will it work and how many perks will it take to keep highly skilled workers from seeking more flexible companies?

Pursuit News to Use Intelligence

Trend Analysis

Capital Markets

The tepid U.S. investment climate has caused a backlog of more than 300 companies waiting to IPO. Companies that have gone public recently have tended to be smaller listings under $100 million. John Tuttle, the NYSE’s vice chairman, is expecting a post-Labor Day resurgence in interest. Investors are focused on value versus growth and the ability to demonstrate profitability - for the time being. 

China stock performance has caught the eye of Goldman Sachs, Bank of America, Jefferies Financial Group, Amundi, and Citi—all of which have brightened formerly dim outlooks for Chinese equities. The MSCI China Index, the broadest measure of China stocks on mainland and offshore markets, is up more than 20% since March 15th.

With so much upside potential it’s no wonder that China-based listings are breaking records, while initial-public-offerings elsewhere dry up in the heat of recession fears. So far Shanghai and Shenzhen markets have remained relatively sheltered from the global downturn.

China’s Didi de-listed from the NYSE after pressure mounted from a China crackdown. That isn’t stopping other firms from chasing listings elsewhere, including through Special Purpose Acquisition Companies (SPAC’s). These firms have no operations, but have listings on exchanges. Active companies merge with them to get a fast on-ramp to going public without an IPO. 

Even though SPAC listing losses were more than doubled the S&P 500′s 2022 decline, companies are still choosing this route including in Singapore and the U.S. markets. Blockchain-based crypto payments provider Roxie is merging with Goldenstone Acquisition Ltd in a deal valued at roughly $3.6 billion. With so much money flowing via the SPAC pipeline, participants are concerned about potential regulation. Proposals from the Securities and Exchange Commission and Democratic Sen. Elizabeth Warren of Massachusetts were on the minds of participants at the recent 2022 SPAC Conference held in Rye, NY. And the tech bubble that seemingly burst this ear, well, money keeps pouring in as companies continue to build.

Streaming and Media

What’s old is new as streaming giant Netflix delayed the two episode “Stranger Things” finale by five weeks rather than dropping the entire season all at once. It’s a change in tactic for a company that prided itself on making the weekend binge “a thing” that became a weeknight ritual for many during those dark winter Covid nights. With 200 million subscribers worldwide, the ailing streaming giant is adapting to what its rivals like Disney+, AppleTV, and Amazon have been doing from the start—the weekly episode drop that teases viewers for weeks on end (and sustains the monthly fee model). It’s not all that different from the advent of the medium itself with 1950’s TV shows airing at a precise day and time with a cliffhanger kicker to keep viewers tuning in week after week. That and the “only in theaters” movie releases that are challenging the streaming world as people are eager to get out of their houses and watch a film on an actual big screen again.

Viewers are also overwhelmed with choices these days. CNN+’s early demise barely a month into their launch shows there’s a limit to what execs think will sell. Still, for cord-cutters, the cost of streaming services are beginning to add up. The goal was to beat the cable companies at their own game. If there are too many choices in the end, some kind of market consolidation is likely (note Discovery and WarnerMedia’s $34 billion merger). And the best positioned to weather any storm are the tech giants like Apple and Amazon, with deep pockets and enough time to wear down the opposition. 

In the end, profits will trump sheer volume of content. Those profits may be coming from new revenue streams including advertising. Netflix also announced a crackdown on password sharing though underground marketplaces sell them at rock-bottom prices. Non-fungible tokens (NFTs) are also in the mix as Tom Brady’s digital collectibles firm Autograph teams up with ESPN to sell NFTs based on the 10-part ESPN docuseries “Man in the Arena.” Whether the general crypto meltdown affects interest in this burgeoning segment is still TBD.

Technology

Blockchain is, however, making significant headway in the healthcare sector. Along with cryptocurrency, virtual reality, and artificial intelligence, U.S. healthcare spending is expected to double by 2040 to $8.3 trillion, up from $4 trillion in 2020, as the industry adopts new and emerging health technologies.

Some of that spending will inevitably revolve around cloud resources. Firms had been offloading their data storage, and increasingly their software needs, to external providers which offered zero downtime and back-up services. That trend may be shifting as Walmart made news with its ability to switch seamlessly between cloud providers and its own servers. That could save millions of dollars and offer a road map to other companies that want to reduce their dependence on big tech.

Securing all of that data, wherever it resides, also depends on a good offense. With that in mind, IBM is acquiring Randori, a Boston-based security startup that combines attack surface management (ASM) with continuous automated red teaming (CART) to help organizations bolster their cyber defenses.

Some firms, and governments, have also become increasingly concerned about where user data is being stored and who may have access to it. The popular short-form video app, TikTok, owned by China-based ByteDance Ltd, was in the spotlight after news surfaced that its user’s data could be accessed in China. They have now announced that U.S. user data is routed through the cloud infrastructure of its partner Oracle Corp. though the firm still uses its own U.S. and Singapore data centers as backup. They expect to delete U.S. user data from its own data centers and migrate fully to Oracle servers. 

Gaming

TikTok’s data storage is about to surge with the launch of its augmented reality development platform Effect House, where creators can build AR effects for use in TikTok’s video app. Meta is also expanding its AR offerings, though users may not be so happy. While its content creators will be able to monetize their creations in Horizon Worlds, Meta may take up to nearly 50 percent of the revenue. That’s some real, not virtual, money.

ByteDance Ltd. has some analog aspirations of its own, but its plans for an initial public offering have stalled. They finally filled a vacancy in their executive management team with the appointment of Julie Gao, a senior China-focused lawyer as their new chief financial officer. The position had been vacant since last November.
With tech under scrutiny, M&A is under review as Microsoft (ticker: MSFT) strives to advance its $69 billion all-cash deal with Activision Blizzard (ATVI). It looks like it might happen, according to Microsoft, with projections to close in the fiscal year ending in June 2023. If this does come to fruition, it will set MFST up for success and likely have a big impact on the gaming and broader M&A ecosystem.