Friday Morning Reads

Friday Morning Reads






Something's cooking

The three-week-old antitrust trial between Apple (NASDAQ:AAPL) and Epic Games will wrap up on Monday, but not before an appearance from a high-profile defendant. CEO Tim Cook will take the stand today before the companies make their closing arguments and Judge Yvonne Gonzalez Rogers issues a final ruling (neither side wanted a jury trial). Other executives from both firms have already testified, including Craig Federighi, Apple's SVP of Software Engineering; Phil Schiller, Apple Fellow and former longtime head of marketing, as well as Epic Games CEO Tim Sweeney.

Backdrop: The legal fight started last year when Epic created its own direct payment method within popular game Fortnite, circumventing fees paid for App Store purchases. Apple then issued a warning to Epic regarding the workaround, but the latter refused to remove it, and Apple kicked the developer off its platform. The current lawsuit then emerged, while companies like Spotify (SPOT) and Match Group (MTCH) have also accused the App Store of being anti-competitive.

While Tim Cook has testified before Congress in the past, today will mark the first time he has ever taken the witness stand in a trial. Apple seems to have the edge in terms of legal precedent in the case, but a loss could inflict heavy casualties on the tech giant's lucrative App Store operation. In fact, Apple's Services Segment, which includes the App Store, Apple Music, iCloud and Apple TV+, brought in an eye-popping $53.7B in revenue during 2020.

Flashback from July 2020: The last time Cook appeared before the House Judiciary subcommittee on antitrust, commercial, and administrative law, he had the following to say. "Apple does not have a dominant market share in any market where we do business. That is not just true for iPhone, it is true for any product category. Our commissions are comparable to or lower than commissions charged by the majority of our competitors and we have never raised the commission or added a single fee." (7 comments)

Rebound mode?

A market comeback on Thursday helped the major averages break a three-day losing streak, while U.S. stock index futures tacked on another 0.3% overnight. Some "buy the dip" action may be happening, though fresh data showed the lowest level of jobless claims since the start of the pandemic in March 2020. According to figures from the Labor Department, 444,000 Americans applied for first-time unemployment benefits in the week ending May 15, down from 478,000 in the previous seven days.

Worries remain: "I think people are still concerned by the volatile moves that we're having in our market," said Jonathan Corpina, senior managing partner at Meridian Equity Partners. "In reality, people are still apprehensive about what the economy will look like one month from now, two months from now, six months from now." Rising inflation and an overheated recovery could trigger the Fed to pare back easy-money policies, while tapering talk was head at the latest FOMC meeting.

Another thing on the minds of investors is the global minimum tax proposal just announced by the Treasury Department. The new corporate level would be at least 15%, less than the 21% rate it has proposed for the overseas earnings of U.S. businesses. "It is imperative to work multilaterally to end the pressures of corporate tax competition and corporate tax base erosion... discussions should continue to be ambitious and push that rate higher," the U.S. Treasury said in a statement. Secretary Janet Yellen today is also scheduled to preside over a meeting of the Financial Stability Oversight Council.

Outlook: While many countries have endorsed a minimum tax (there's been talk at the OECD for years), others may not embrace one unless they can claim a bigger stake in the profits of U.S. tech companies. The debate also touches on the ongoing friction in international taxation: whether to tax companies based on the location of their income or the location of their headquarters. The U.S. didn't have a pure system before or after the 2017 tax act, which leaned toward taxes based on where revenues are generated, though the Biden administration appears to be focusing more on the latter.

IPO Access

In line with its motto to democratize financial markets, Robinhood (RBNHD) is rolling out the opportunity for its app users to get in on IPOs through its new product called IPO Access. Traditionally, most IPO shares go to financial institutions or the very wealthy or well-connected. With IPO Access, retail traders will get the chance to buy shares at the IPO price (the product will be gradually introduced to all customers in the coming weeks).

How does it work? App users can request to buy shares of companies at their initial listing price range. "When the final price is set, you'll be able to review, edit, or cancel your request, before shares are allocated to Robinhood customers," according to its blog. The company did warn that IPO shares can be very limited, but added that all Robinhood customers get an "equal shot" at shares regardless of order size or account value.

Footnote: "Here's to democratizing IPOs for all!" Robinhood added in the post that ends with a disclaimer: "IPOs can be risky and speculative investments, and may not be appropriate for every investor." Robinhood, itself, is poised to go public, with Bloomberg reporting that it may file its IPO prospectus next week with an aim to go public toward the end of June. (7 comments)


Earlier this week, WeWork (WE) told Bloomberg that demand and sales have returned to pre-pandemic levels. But according to records obtained by the FT, WeWork losses almost quadrupled to $2.1B in the first quarter. A source said a settlement with WeWork co-founder and former CEO Adam Neumann accounted for about $500M of the Q1 2021 loss, but even removing that impact, the loss would still have nearly tripled on the year.

Bigger picture: The losses were largely driven by lockdowns and a remote working environment. Revenue dropped nearly 50% to $598M as WeWork shed about 200,000 customers, leaving the company with 490,000 customers in Q1. Some however think that WeWork will do well after the pandemic as people, startups and corporations look for short-term flexible space or satellite hubs for their businesses.

Go deeper: The latest news comes as WeWork tries to go public through a reverse merger with SPAC BowX Acquisition (BOWXU). The $9B deal follows a failed IPO in 2019, when its prospectus raised questions about whether the office-sharing company could turn a profit (it has lost $2B in 2018). Major investor SoftBank (OTCPK:SFTBF) then stepped in with a bailout and WeWork's current chairman is also SoftBank's COO. (3 comments)

Tax crackdown

Things seem to be calming down in the crypto market following a serious plunge and some wild swings seen earlier in the week. Bitcoin (BTC-USD) rose another 2.1% overnight to $40,763, while Ether (ETH-USD) climbed 2% to $2,777 and Dogecoin (DOGE-USD) advanced 9% to $0.40. Even a monkey wrench thrown by the U.S. Treasury on Thursday - calling for stricter crypto compliance with the IRS - didn't seem to dent sentiment for too long.

Breakdown: The U.S. Treasury is proposing a requirement that any crypto transfers over $10K be reported to the IRS, among other plans, given that crypto markets pose a "significant" tax-evasion risk. The news is part of a broader Biden plan to raise $700B in revenue over the coming decade by stepping up IRS scrutiny of Americans, including doubling the size of the IRS workforce by hiring 87K additional employees by 2031. Reporting of the crypto transfers would be set to begin in 2023.

In a speech yesterday, Jerome Powell said the Fed will also issue a discussion paper this summer on the possibility of a U.S. central bank digital currency. The key focus is on how a CBDC could improve the current American domestic payments system, while the Boston Fed is working on more technical projects, focused on tools and infrastructure.

Quote: "We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks," Powell said in a video message. "The design of a CBDC would raise important monetary policy, financial stability, consumer protection, legal, and privacy considerations and will require careful thought and analysis - including input from the public and elected officials." (2 comments)

What else is happening...

KC Southern (NYSE:KSU) expected to nix Canadian Pacific (NYSE:CP) deal - WSJ.

Exxon (NYSE:XOM), Chevron (NYSE:CVX) slam Australian levy to clean up offshore field.

Three Carnival (NYSE:CCL) lines set to resume U.S. cruises in July.

Cathie Wood still a big buyer of Coinbase (NASDAQ:COIN)owns $1B worth of shares.

Morgan Stanley (NYSE:MS) reshuffles ranks, setting up for CEO succession.

Tesla (NASDAQ:TSLA) plans to finally deliver Model S Plaid in June.

California regulator passes EV mandate for nearly all UBERLYFT rides.

Ford (NYSE:F) considers SPAC or spinoff play for Spin electric scooter business.

Virgin Galactic (NYSE:SPCE) sees heavy volume after test flight announcement.

Good news for major burger/sandwich chains in latest Evercore survey.

Thursday's Key Earnings

Applied Materials (NASDAQ:AMAT) +0.2% AH on Q2 beats, upside guidance.
BJ's Wholesale Club (NYSE:BJ) -5% as operating income, gross profit declined.
Kohl's (NYSE:KSS) -10.2% despite strong Q1 numbers, robust guidance.
Palo Alto Networks (NYSE:PANW) +6.1% AH raising full-year outlook.
Petco (NASDAQ:WOOF) -1.1% despite adding more than 1M customers in Q1.
Ralph Lauren (NYSE:RL) -7% amid general retail fatigue.
Ross Stores (NASDAQ:ROST) +1.8% AH forecasting sizzling same-store sales.

Today's Markets

In Asia, Japan +0.8%. Hong Kong +0.1%. China -0.6%. India +2%.
In Europe, at midday, London flat. Paris +0.5%. Frankfurt +0.2%.
Futures at 6:20, Dow +0.3%. S&P +0.3%. Nasdaq +0.3%. Crude +1.1% to $62.63. Gold -0.2% at $1878.10. Bitcoin +2.1% to $40763.
Ten-year Treasury Yield flat at 1.64%

Today's Economic Calendar

9:30 Fed's Kaplan Speech
9:45 PMI Composite Flash
10:00 Existing Home Sales
1:00 PM Baker-Hughes Rig Count
1:30 PM Fed's Daly Speech
4:55 PM Fed's Kaplan Speech

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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