Another Rough Day for Equities

Dow: -1.36% | Nasdaq: -0.09% | S&P: -0.87%

Catch Up Quick

• Biden reached a deal with Uber + Lyft to give free rides to vaccine sites

• The Pentagon is considering ending the JEDI cloud-computing project

• Colonial Pipeline, the largest pipeline in the U.S., had to briefly shut down due to a ransomware attack

• SpaceX will accept Dogecoin as payment to launch “DOGE-1 mission to the Moon” next year

• Chinese rocket debris landed in the Indian Ocean, easing anxiety that it’d fall on a densely populated area

• Households now expect inflation levels to reach 3.4% by next year (New York Fed’s April consumer survey)

• Facebook ($FB) is under pressure from states to abandon plans to launch a version of Instagram for children

• The FDA approved usage of the Pfizer-BioNTech coronavirus vaccine in kids ages 12 to 15

Thought of the Day

• According to the WSJ, online food ordering/delivery services such as Doordash, Uber Eats, and Grubhub have all raised prices on consumers in light of rising food prices flowing through restaurant supply chains

• Spoken by Warren Buffet, companies most able to withstand periods of high inflation are those that posses strong enough market power to increase prices without stifling demand or losing market share

• But with record levels of government spending increasing inflationary risk, it is very reasonable to argue that no food delivery company has sufficient market power to weather a sustained period of high inflation

• At the end of the day, the only real competitive advantage that these companies have over one another lies around geography, as incumbents penetrate new markets in order to keep prices low via razor thin margins and scale-economics

• In the tech-enabled service world, this is an advantage often short-lived

• From this perspective, delivery companies are racing to the bottom against each other, as little product differentiation coupled with heightened competition compresses margins at a time where countrywide re-openings decelerate demand 

The Bottom Lines

• Looking at China, a comparable market ahead of the U.S. in terms of food delivery app adoption, the fate of the U.S. food delivery war ends is clear: consolidation via M&A

• While this isn’t a bad ending for investors given the potential incoming premiums, this will likely result in even higher prices for consumers as competition decreases…at least until driverless cars or delivery drones remove the human element, moving margins even lower!

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