Stocks & Equities

Fortnite-maker Epic completes $1B funding round. The most ironic investor on the list: the Ontario Teachers’ Pension Plan Board.

Posted by Brian Heater

on Wednesday, 14 April 2021 7:45

 

How much is Epic Games worth? Well, we’ve long ago surpassed the realm of dollar figures regular humans can contextualize. With its latest round, the gamer hit an equity valuation of $28.7 billion. Yes, “b” for “billion.” That’s a lot of micro-transactions.

Time to start talking metaverse!

Best known for the wildly successful battle royale title Fortnite, Epic just announced another $1 billion funding round, featuring a $200 million Sony Group Corporation investment. The rest of the list is, predictably, a long one, including [deep breath], Appaloosa, Baillie Gifford, Fidelity Management & Research Company LLC, GIC, T. Rowe Price Associates-managed accounts, Ontario Teachers’ Pension Plan Board, BlackRock managed accounts, Park West, KKR, AllianceBernstein, Altimeter, Franklin Templeton and Luxor Capital.

Epic vs. Apple

“We are grateful to our new and existing investors who support our vision for Epic and the Metaverse,” CEO and founder Tim Sweeney said in a statement tied to the news. “Their investment will help accelerate our work around building connected social experiences in Fortnite, Rocket League and Fall Guys, while empowering game developers and creators with Unreal Engine, Epic Online Services and the Epic Games Store.”

Sweeney has plenty of reason to be grateful, as the controlling shareholder.

It’s been a busy several months for the game maker. The company has been waging an on-going war with both Apple and Google over in-game payment revenues. A trial likely to feature some of the biggest names in tech is expected to kick off early next month.

Gaming rules the entertainment industry, so why aren’t investors showing up?

Epic has also been using its already extremely deep coffers to purchase game developers and publishing studios, including its March acquisition of Fall Guys-maker Mediatonic. It’s clear the company is amassing a large portfolio of titles through acquisitions, a trend that is almost certain to continue with this latest massive round.

The funding also looks likely to strengthen the company’s ties to Sony, as well. Here’s Sony Group Corporation CEO Kenichiro Yoshida, also quoted in the press release:

Epic continues to deliver revolutionary experiences through their array of cutting edge technologies that support creators in gaming and across the digital entertainment industry. We are excited to strengthen our collaboration to bring new entertainment experiences to people around the world. I strongly believe that this aligns with our purpose to fill the world with emotion, through the power of creativity and technology.

Prior to this round, the company had raised $3.4 billion, including a a $1.78 billion round last August.

Epic cries monopoly as Apple details secret ‘Project Liberty’ effort to provoke ‘Fortnite’ ban

 

Rabo: When It Comes To Inflation, What One Does And Doesn’t See Is All Political

Posted by Michael Every of Rabobank

on Tuesday, 13 April 2021 7:08

CPI Basket Case

On Sunday on ‘60 Minutes’, Fed Chair Powell said “We can wait to see actual inflation before we raise interest rates.” Well, today is the US inflation report. The market consensus is headline prices will rise 0.5% m/m, which would be around 6% y/y annualised, and on a straight y/y basis CPI will go from 1.7% to 2.5%. Of course, excluding food and energy CPI is seen rising just 0.2% m/m, or around 2.4% annualised, and up from 1.3% to 1.5% y/y. Yet the Fed won’t see any actual inflation in those numbers. When it comes to inflation, what one does and doesn’t see is all political.

For example, we are currently seeing a housing boom in many economies, most so in Australia, on the back of ultra-low interest rates. What do central banks and regulatory bodies say when house price inflation is, say, 5%, or even 10% – let alone 30% as in Oz? Answer: nothing. Once upon a time they had to do something – but then we removed accurate measures of house prices from CPI, so now they don’t. It isn’t happening, or isn’t their remit. True, they can waffle about financial stability, and in the case of the odd outlier like New Zealand (and on/off in China), the government can force action from the central bank. Yet until that revolution is imposed globally –in the same ‘yes,-that-is-going-to-happen’ way the US wants minimum corporate tax rates to be– house-price inflation just is what it is. As such, is it any wonder that such a vast slice of the US, Chinese, European, Aussie, etc., economies are focused on endless property speculation?

How about stock prices? Can anyone remember back to Alan “Bubble Boy” Greenspan and his empty warning of “irrational exuberance”? Indeed, can anyone remember the last time a major central bank deliberately raised interest rates in order to slow down an ascent in stocks, because this was inflationary? Conversely, does anyone seriously think that stocks could ever fall significantly before our monetary authorities slashed interest rates (where they still can), or boosted QE further, or did “whatever it takes” to get them to go back up again? So clearly not much fear of inflation there – just deflation.

Of course, there is wage inflation. Nowadays there are more frequent and widespread calls to ‘Build Back Better’ and ‘level up’, and recognition that this involves higher pay. (Just not for NHS workers in the UK, who were initially offered 1%). Even the US Treasury Secretary is using quasi-Marxist terminology of “labor vs. capital”. However, since the neoliberal reforms of the late 1970s/early 1980s, wage inflation has not been tolerated by central banks – outside of finance and after-dinner speaking fees of USD250,000 a pop. Any sign of general salaries going up to, say, 5% or even 10% is terrifying, was met with an immediate response of higher interest rates.

Yes, central-bank rhetoric has now changed: but it’s easy to say one is willing to let wage rises happen when one is also aware that the economic structure will not allow it! You can’t sit on rates or yields or talk about “labour vs. capital” and expect wages to just go up. You need to *strengthen* the bargaining power of labour vs. capital. How do you do that without empowering unions/weakening the power of firms? How do you do that while allowing off-shoring and free trade, because the logical response will be to shift production elsewhere. And how do you stop capital replacing labour, i.e., automation? Our global system is designed to ensure we don’t get general wage inflation. Slashing rates, QE or even YCC are performative in a political vacuum: but, handily, they produce higher house and stock prices.

Meanwhile, expensive Aussie house prices and cheap rhetoric are not the only things growing 30% y/y. As the US CPI report will probably only partially show, so are food and energy costs. I wrote recently about geometric vs. arithmetic means and hedonic adjustments made to the CPI basket that keep it lower than it feels for most people. One other what-you-see-and-what-you-don’t impact in the same basket I didn’t mention is periodicity.

How often do you buy a TV, for example? The price of those has come down when one adjusts for quality, and even in absolute terms. Yet my own experience is that if I am buying more than one every five years, I am pretty angry about it. The same goes for key pieces of furniture and lots of other items where our neoliberal system *has* seen prices come down (and Western supply chains and jobs shift to Asia in tandem). By contrast, how often do you buy food? How often do you fill up your car with petrol/gas, or buy something delivered by somebody who did? Inflation fails to capture this time distribution effect. Everything around you that you need to buy today is going up in price rapidly – but don’t worry: something big you might not need to buy until 2028 is going down in a hedonic-adjusted price. Sit back and feel the savings.

Earnings Growth Not As Strong As Advertised

Posted by Lance Roberts

on Tuesday, 13 April 2021 6:35

As markets surge to record highs, analysts are rushing to ratchet up earnings estimates as optimism explodes.

“The first quarter of 2021 marked the largest increase in the bottom-up EPS estimate during a quarter since FactSet began tracking the quarterly bottom-up EPS estimate in Q2 2002. The previous record was 5.4%, which occurred in Q1 2018 after tax reform was passed.” – FactSet

Of course, with market’s at record highs, Wall Street needs drastically higher estimates to rationalize bullish allocations. However, before we get into the risks of forward expectations, let’s review what happened.

A Disappointing Past

Through the end of 2020, quarterly operating earnings increased $0.01 to $38.19 from $38.18 at the end of 2019.

You read that correctly.

Quarterly operating earnings, which are mostly useless as companies exclude all the “bad stuff” and fudge the rest, increased by just $0.01 while markets exploded 16.28% in 2020.

It is far worse when looking at “real” reported earnings, which declined -11.4% from $35.53 to $31.45.

However, the good news is these are very sharp recoveries from the Q1-2020 lows of $19.50 and $11.98 per share, respectively, as the economy reopened.

Earnings Growth Not As Strong As Advertised

Analysts always over-estimate earnings by about 33% on average. As discussed in “The Problem With Analyst’s Forecasts:”

“The biggest single problem with Wall Street is the consistent disregard of the possibilities for unexpected, random events. In a 2010 study, by the McKinsey Group, they found that analysts have been persistently overly optimistic for 25 years. During the 25-year time frame, Wall Street analysts pegged earnings growth at 10-12% a year when in reality earnings grew at 6% which, as we have discussed in the past, is the growth rate of the economy.”

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Tiger Global, the $65B fund on a wild tech spending spree

Posted by Trung T. Phan

on Monday, 12 April 2021 8:07

Founded as a hedge fund in 2003, Tiger Global has turned into one of the investment industry’s largest tech players.

Earlier this month, investment firm Tiger Global announced that it raised one of the largest pots of VC money ever: $6.7B.

As detailed by TechCrunch, the news caps off an incredible streak for the firm’s tech ambitions:

  • Roblox: Tiger Global owned 10% of the sandbox gaming startup when it went public in March at a valuation of $38B+
  • Stripe: Tiger Global saw the value of its stake in the fintech firm rise when Stripe announced a $600m raise at a $95B valuation
  • M&A wins: 3 of Tiger Global’s portfolio companies were acquired in billion-dollar deals in 2020 (i.e., Postmates, Kustomer, Credit Karma)

Tiger Global was founded as a NY-based hedge fund…

… in 2003 by Chase Coleman, who previously cut his teeth with investing legend Julian Robertson at Tiger Management.

Over the years, the firm expanded its mandate to include private equity and venture investing; Tiger Global’s $6.7B fund is its 13th VC fund.

Today, it manages $65B

And the firm’s ~100 employees are its biggest shareholders.

Per The Information, the secret ingredients behind Tiger Global’s recent tech success include:

  • Speed: It moves very fast on deals, closing some in just 3 days.
  • Huge war chest: Its massive pile of money is matched by few in venture capital, and the firm is willing to spend.
  • Resources: Tiger Global pays for portfolio companies to access high-priced consultants for advice (e.g., Bain).
  • Pre-emptive offers: Tiger Global approaches startups that aren’t even in fundraising mode and throws big offers.
  • Long-term holders: Since Tiger Global also operates public market hedge funds, it provides price stability for startups because — unlike traditional VCs — it doesn’t have to distribute funds after an IPO.

Through Q1 2021, Tiger Global has already closed 60 tech deals (~4+ a week).

Go to where the money is

In 2020, US startups were involved in acquisitions or public listings that totalled a record $290B per The Information.

Tiger Global’s increased deal activity coincides with this wild spending spree.

And it might only get crazier in 2021: Tiger has bets on ByteDance, Discord, Hopin, and — wowzers — a ~10% stake in crypto exchange Coinbase with a potential value of $10B when it goes public this week.

 

Anger In The Ranks

Posted by THE STRAITS TIMES

on Thursday, 8 April 2021 6:36

 

NEW YORK (BLOOMBERG) – For the second time in a little more than a week, Thomas Gottstein was facing a tough crowd: his own bankers.

The chief executive officer of Credit Suisse Group gathered dozens of managing directors at the global bank on a conference call late on Tuesday (April 6), as part of crisis-management efforts after the lender announced that it stands to lose as much as US$4.7 billion (S$6.3 billion) amid the meltdown of hedge fund Archegos Capital Management.

According to people with knowledge of the call, Mr Gottstein was grilled on the exposure and risk profile of the bank – and why it lost so much more than rivals in the debacle. Mr Gottstein could not yet give detailed answers, and instead pointed to the arrival of new chairman Antonio Horta-Osorio later this month as an opportunity to reassess its strategy, the people said.

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