Stocks Rise on Positive Input by FDA on Pfizer Vaccine

Dow: +0.35% | Nasdaq: +0.50% | S&P: +0.28%

Catch Up Quick

• The Afternoon Audit is now officially a Substack publication :)

• Apple announces AirPods Max over-ear headphones starting at $549

• Health and Human Services Secretary Alex Azar expects society to “return to normalcy” in 2021

• Online personal styling tool Stich Fix ($SFIX) rockets +40% after earnings beat

• Calm, a San Francisco-based guided meditation platform, raised $75M in Series C funding at a $2B valuation 

• U.S. consumer borrowing rose by less than expected in October while credit card debt outstanding hit a three-year low

• China's November trade balance was a surplus of $75B, a staggering $22B larger than forecasted

• A second U.S. judge blocked the Commerce Department from imposing restrictions on TikTok

• BlackRock raised equities to overweight (a bullish indication) from neutral, on a six-to-twelve-month basis

• Retailer Francesca’s plans to shut another 97 stores after filing for bankruptcy

• Airbnb is raising the price range on its IPO to between $56 and $60 a share, from $44 to $50, implying a ~$42B valuation

• Cisco ($CSCO) acquired Slido, a Slovakian interaction platform for online conference speakers and audiences

• U.S. lawmakers expect to pass a one-week spending bill soon that would keep the government funded through December 18th

• Bob Dylan sold his publishing catalog to Universal Music Publishing Group

Thought of the Day

• Recently, discount online marketplace Wish filed to go public with plans to price shares between $22 and $24, implying a ~$14B valuation on the upper end

• As we’ve discussed previously, eCommerce is flourishing amongst the pandemic-induced brick & mortar apocalypse

• However, a positive industry outlook from a top down investing perspective doesn’t render all incumbents attractive

• In order to compete with the scale economics of larger eCommerce players, Wish relies on China, where 87% of their merchants are based 

• Thus, Wish doesn’t operate within much of an economic moat given it doesn’t have protected access to any of its manufacturers

• This is troublesome given its core value proposition is price, which becomes unsustainable if manufacturing and supply chains are less embedded in the value chain

• Furthermore, tensions between the U.S. & China pose extreme risk in disrupting Wish’s Chinese reliant business model that has allowed them to undercut competitors

  • Look no further than earlier this year when the Universal Postal Nation cut a subsidy that enabled low weight goods shipped from China to the U.S. to cost less than if they were to ship within the U.S.,  increasing international shipping costs by ~80% virtually overnight

• A look into Wish’s P&L reveals that over the past 4 years their sales and marketing expenses averaged 81% of revenue and 104% of gross profit 

• Meaning that currently, every $1 spent on marketing returns $1.23 in revenue but only $0.96 in gross profit 

• This is significantly lower than comparables (Amazon does >$4.30 in revenue for every $1 in marketing), signaling a potential reliance on inorganic growth strategies that are 1) difficult to scale and 2) likely EPS dilutive given current valuations of relevant targets

The Bottom Lines

• With both tech IPOs and eCommerce red-hot, there likely isn’t a better time for Wish to raise money from public markets

• However, be skeptical about its ability to grow into its hefty valuation over the long-term

• While a Biden Administration is scheduled to ease tensions with the East, its fashion for achieving a competitive advantage will be extremely tough to scale while simultaneously competing with the legendary scale economics of Amazon, among others

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