Last week, the Dow Jones was up 5.7%, its fourth straight weekly gain, S&P 500 was up almost 4%, the Nasdaq was up 2.2%, including a 2.9% Friday move. Mega tech had a rough earnings season, and the five mega-caps were down an average of 12% post earnings. Apple, was exception and rose 5.75% last week, including a 7.6% move on Friday. Mobileye pops more than 37% in IPO after spinning out of Intel. Alphabet posts 6% revenue growth as ad downturn worsens. Microsoft’s 11% revenue growth is slowest in five years. Amazon’s stock tanks on grim holiday forecast. Meta shares drop 19% on weak fourth-quarter forecast and earnings miss and a big tech investor writes to Zuckerberg: Meta’s ‘lost confidence of investors’. Twitter shares to be delisted following Musk takeover. Tesla faces U.S. criminal probe over self-driving claims. Alibaba falls to 6-year low as Chinese President Xi secures 3rd term. VC-funded China-based companies with recent US IPOs down over 90%. Microsoft says more than 20 million people have used Xbox Cloud Gaming, and Xbox Game Pass is profitable as it sees subscription growth slow. TikTok gaming push will be an “enormous” one; post Nov 2 launch. GM is delaying its plan to build 400,000 EVs in North America. Tesla cuts China prices by up to 9% as analysts warn of ‘price war. Shopify shares surged as revenue growth ticks higher. Telus will acquire product development shop WillowTree for US$1.2 billion. Toronto venture funding plunged to a two-year low in third quarter of 2022. While total investment in Toronto during Q3 2022 looked very different from 2021 levels, it was in line with the pre-bull market levels of 2020 (investment totalled roughly between $200 million and $300 million in each quarter of that year). Several local investors have noted this recent venture funding decline is a reversion to the mean and more reflective of a normalized capital deployment cycle than a catastrophic crash.
Canadian Technology Capital Markets & Company News
Telus (T-TSX, TU-NYSE) to acquire product development shop WillowTree for US$1.2 billion.
Telus has entered into an agreement to acquire American tech company WillowTree, which develops digital products like native mobile applications and unified web interfaces, for US$1.2 billion. The transaction, which is expected to close in January 2023, involves US$210 million of assumed debt. As part of the deal, WillowTree’s majority stakeholder Insignia Capital Group will sell its stake in the company, after initially investing in 2018. Based in Charlottesville, Virginia, WillowTree’s more than 1,000 digital strategists, designers, engineers, and project managers work with brands on initiatives to deliver digital products. The startup operates 13 global studios located across the United States, Canada, Brazil, Portugal, Spain, Poland, and Romania. In March, Telus’ health division acquired Toronto-based healthtech startup Sprout Wellness Solutions, which uses machine learning cognitive behavioural science to drive engagement, loyalty, and overall health for users by measuring and rewarding healthy behaviour. Most recently, Telus acquired HR tech company LifeWorks for $2.3 billion. https://bit.ly/3DeZZB3
Shopify (SHOP-NYSE, SHOP-TSX) shares surge as revenue growth ticks higher.
Shopify’s revenue growth picked up slightly in the third quarter, powered by growth in payment processing and other add-on services it sells to existing customers of its e-commerce software. Shares in Shopify, which have tumbled around 75% this year, surged 18% following the results. Revenue totaled US$1.37 billion, up 22% from the same quarter last year. That was an uptick from the 16% growth in the second quarter, but still well below the blistering growth the company saw as shoppers flocked online at the peak of the pandemic. Revenue from the e-commerce giant’s services business, which houses payment processing, fulfillment and lending, jumped 26% year-on-year and made up 72% of Shopify’s overall revenue. That growth was due largely to Shopify processing a bigger share of merchants’ payments. Subscription revenue rose 12%, helped in part by more merchants using Shopify’s hardware for brick-and-mortar sales, Shopify President Harvey Finkelstein said. Selling more services will be key for Shopify as it seeks to return to profitability amid slowing subscriber growth. The company revised its outlook to remove the previous quarter’s guidance that the number of new merchants joining the platform would be higher in the second half of this year than the first half. The earnings report was Shopify’s first since closing its acquisition of fulfillment startup Deliverr in July. The company has emphasized fulfillment as a key area for future growth, but executives said on Thursday they would take a measured approach, emphasizing verticals like apparel and consumer packaged goods. Shopify’s spending on its fulfillment business also heightens competition with Amazon. When asked about Shopify’s strategy towards addressing Amazon’s Buy With Prime launch, which allows third-party merchants to offer Prime members two-day shipping, Finkelstein said the two companies were talking about how to best manage Buy With Prime. https://bit.ly/3Ftfec4
Sophic Client UGE International (UGE-TSXV, UGEIF-OTC) announces private placement of up to $5 million of project development green bonds.
The Company announced a brokered “best efforts” private placement of green bonds (the “Green Bonds”), for gross proceeds of up to US$5,000,000 (the “Offering”). The Offering will be led by Canaccord Genuity Corp., on behalf of a syndicate of agents. The Green Bonds will be denominated in US dollars and Canadian dollars and will be issued, at the subscriber’s discretion, at a price of either US$955 per US$1,000 principal amount, or C$955 per C$1000 principal amount. The Green Bonds will have a term of four years, and bear interest at a rate of 9% per annum, payable semi-annually in US dollars or Canadian dollars, as applicable, in arrears commencing December 31, 2023. The Green Bonds will be secured against a pool of the Company’s solar and energy storage development projects (the “Secured Projects”) by a pledge to each subscriber of Green Bonds ((a “Subscriber”) of the equity interests in the Secured Projects. UGE will covenant with Subscribers to maintain a minimum coverage ratio of the value of the Secured Projects equal to 125% of the aggregate amount of obligations outstanding under the Green Bonds. https://bit.ly/3WhBLP2
INEO (INEO-TSXV) announces marketed public offering of up to $2 million and non-brokered note of up to $1 million.
The Company has filed a preliminary short form prospectus (the “Preliminary Prospectus”) with the securities regulatory authorities in all of the provinces of Canada, except Quebec, in connection with a proposed marketed public offering of units of the Company (“Units”), at a price of $0.12 per Unit for aggregate gross proceeds of up to $2,000,400 (the “Offering”). Each Unit will consist of one common share of the Company (a “Common Share”) and one-half of one common share purchase warrant (each whole common share purchase warrant, a “Warrant”). Each Warrant will be exercisable to acquire one Common Share (a “Warrant Share”) for a period of 36 months following the closing of the Offering (the “Closing”) at an exercise price of $0.19 per Warrant Share. The Offering is being conducted on a “best efforts” agency basis by a syndicate of agents led by Beacon Securities Limited as lead agent and sole bookrunner (the “Lead Agent”) and including Echelon Wealth Partners Inc., PI Financial Corp., Haywood Securities Inc. and Paradigm Capital Inc. collectively with the Lead Agent, the “Agents”). https://bit.ly/3NkQPYd
Sophic Client LuckBox (LUCK-TSXV, LUKEF-OTC) confirms receipt of two contradictory and opportunistic proposals from activist shareholder.
The Company confirms that it has received two inconsistent proposals from Adam Arviv of KAOS Capital Ltd, which if pursued would not be in the best interests of the Company and its shareholders. Mr. Arviv appears to have recently acquired shares of the Company and has not indicated his level of ownership. Mr. Arviv initially proposed a merger with a private gambling company valuing the Company at $0.09 per share, to be paid in shares of the target company only. Mr. Arviv then appeared to have changed his mind and proposed a “wind down of the Company”, ignoring the Group’s now finished platform and growing player base. Neither proposal reflects the value represented by the Company’s significantly growing business and is also well below the Company’s net cash position. The Board has retained McMillan LLP as legal counsel, and DuMoulin Black LLP continues to advise the Company. Notwithstanding the Company’s concerns regarding whether Mr. Arviv is acting in good faith, the Company remains prepared to meet with Mr. Arviv in his capacity as a shareholder of the Company. It should be noted that the Company had previously proposed an in person meeting with Mr. Arviv, which he declined. Another meeting that was suggested by the Company was also declined. Real Luck Group remains committed to optimizing shareholder value. The Company continues to execute on its corporate strategy as outlined at the annual general meeting of shareholders held in August 2022. Player Registrations for 26 days in October hit 24,411, a record for the Group. Deposits grew 254% and global Active Players grew 14 fold due to the accelerated player acquisition efforts and enhanced customer retention strategy. https://bit.ly/3TMIaQX
GameSquare Esports (GSQ-CSE) issues 2023 revenue guidance of US$45 to US$50 million, a 65% increase over 2022 guidance.
The Company announced revenue guidance for its 2023 fiscal year of US$45 to US$50 million, and gross margin of 35-40%. Additionally, the company reaffirms its increased 2022 revenue guidance of US$27.5 to US$30.0 million, and gross margin of 35% to 40%. https://bit.ly/3gUXah1
BBTV (BBTV-TSX) announces strategic acquisition of Outloud Media, expanding multi-platform distribution and monetization solutions for creators on Facebook and Snapchat.
Outloud Media generated US$4 million in revenues over the last 12 months. The acquisition is mainly structured as a 5-year performance earn-out of up to US$5 million. The performance-based earn-out will be calculated as a percentage of shareable revenue from Facebook and Snapchat, which is comparable to gross profit less certain additional direct operating costs. https://bit.ly/3Ua2z1Q
Say goodbye to the notch? OTI raises $55 million for technology to remove screen obstructions.
OTI Lumionics, an eye-catching startup out of Canada that has been working on display materials for device makers to create uninterrupted, full-view displays on their devices without the need for “notches” or cut-outs to account for camera technology — and whose name has been connected with Apple as a key supplier for a future notch-free iPhone — has raised $55 million in funding. The funding is coming from a mix of strategic and financial backers that speak to its current business funnel, too: it includes LG Technology Ventures, Samsung Venture Investment Corporation, UDC Ventures (the venture arm of United Display Corporation), Anzu Partners and the Family Office of Lee Lau – LG, Samsung and UDC being some of the biggest names in display technologies. https://tcrn.ch/3N9YSal
Nolk raises $30 million, acquires home goods brands Ergonofis, Opposite Wall.
Montréal startup Nolk, which offers a data and analytics platform for e-commerce brands, has raised $30 million in Series A funding. The all-equity round, which closed in July, was led by the Fonds de solidarité FTQ, with participation from Fondaction, Export Development Canada, Panache Ventures, and a number of undisclosed private investors. https://bit.ly/3D8nkUV
Cinchy closes $19.7 million Series B to make data integrations obsolete.
Toronto-based Cinchy helps clients like National Bank, TD, and Colliers International reduce their dependence on costly, time-consuming integrations and establish fully autonomous data networks. As the macroeconomic environment worsens and other firms—including many fellow tech companies—look to cut costs, Cinchy sees an opportunity to build on this growth during the market downturn. Armed with $19.7 million (US$14.5 million) in Series B financing, Cinchy plans to do just that and help organizations access their data more efficiently. Cinchy’s all-equity Series B round, which closed about a month ago, was led by California-based, cybersecurity-focused Forgepoint Capital. The financing saw participation from a slew of existing Cinchy investors, including Information Venture Partners, ScaleUp Ventures, and Techstars. The round also included an additional $2 million in secondary capital, separate from that $19.7 million total, that went towards Cinchy founders and early employees. The fresh financing brings Cinchy’s total funding to around $32.5 million. https://bit.ly/3DGtYDe
Toronto venture funding plunged to a two-year low in third quarter of 2022.
Despite a season filled with storms, summer 2022 was particularly dry for venture funding in Toronto’s tech sector, and a new report from briefed.in sheds light on just how far investment in the city has fallen from the bull market highs of 2021. During the third quarter of 2022, venture funding in Toronto totalled $254.9 million, a nearly two-year low for the city. Total investment declined by 56 percent compared to Q2 2022 and fell by 85 percent year-over-year. So far this year, Toronto startups have raised less than half of the total capital raised in 2021. While total investment in Toronto during Q3 2022 looked very different from 2021 levels, it was in line with the pre-bull market levels of 2020 (investment totalled roughly between $200 million and $300 million in each quarter of that year). Several local investors have noted this recent venture funding decline is a reversion to the mean and more reflective of a normalized capital deployment cycle than a catastrophic crash. Deal volume has also fallen each quarter in Toronto since reaching a high of 82 in Q1 2021, but with just 22 investments captured by briefed.in in Q3 2022, it sank to its lowest level in at least three years. https://bit.ly/3FnNXrB
Waterloo Region venture deal volume continued to slump in Q3 2022.
With only three deals closed, venture deal volume in the Waterloo Region reached a new three-year low in the third quarter of 2022, according to a new report from briefed.in. In the third quarter of 2022, Waterloo Region tech companies raised a cumulative $111.7 million in venture funding. The region saw an 80 percent decline in venture funding from the second quarter of this year, but a 246 percent increase in funding from the third quarter of 2021, which at the time was a two-year low for the region. The third quarter of 2022 was the lowest for deal volume on record in the Waterloo Region over at least the last three years.) According to briefed.in, the three deals closed in the Waterloo Region during Q3 2022 included Avidbots’ $96.1 million Series C funding round, ProNavigator’s $10 million growth financing round, and Proto’s $5.6 million Series A funding round. briefed.in tracked no deals at the seed or pre-seed stages in the third quarter. https://bit.ly/3zjrOXI
Shopify (SHOP-NYSE, SHOP-TSX) makes investment in Hong Kong startup WATI’s US$23 million Series B round.
Shopify has made an investment in Hong Kong SaaS startup WATI’s US$23 million Series B round. WATI announced the financing on Wednesday, which was led by Tiger Global, with participation from existing investors Sequoia Capital India & Southeast Asia, as well as new investor DST Global Partners, in addition to Shopify. The amount Shopify invested specifically was not disclosed. According to WATI, the Series B round marks Shopify’s first venture investment in a startup operating in the Southeast Asia region. WATI claims that it has raised over US$35 million to date, including its US$8.3 million Series A funding round in December 2021 led by Sequoia Capital India. https://bit.ly/3SXzK89
WonderFi (WNDR-TSX) swaps CEOs, plans hedge against crypto volatility with stock trading and sports betting.
In addition to being named president, Dean Skurka has replaced WonderFi co-founder Ben Samaroo as interim CEO, as the Vancouver-based cryptocurrency company plots an expansion into traditional equities, sports betting, and online gaming amid challenging crypto market conditions. Skurka, most recently WonderFi’s head of exchanges, previously served as president of WonderFi-owned, Toronto crypto trading platform Bitbuy. Under his leadership, Bitbuy grew from 2,600 registered users in 2018 to over 400,000 in 2021, increasing the firm’s annual revenue from under $1 million to $32 million. In late 2021, Bitbuy became Canada’s first regulated crypto marketplace. WonderFi acquired Bitbuy in March for approximately $206 million in cash and shares, kickstarting an acquisition spree that saw the company purchase registered crypto trading platform Coinberry and ink a deal to buy Blockchain Foundry. Noting Skurka’s experience building Bitbuy during a prior bear market, Samaroo believes that Skurka is the best person to helm WonderFi as the company charts a new course amid choppy macroeconomic waters. https://bit.ly/3feGcts
Wealthsimple becomes first regulated Canadian crypto platform to offer staking.
Wealthsimple has launched crypto staking on its platform, claiming to be the first regulated crypto platform in Canada to do so. As of Wednesday, Canadians can officially stake two tokens through Wealthsimple – Solana and Ethereum – to earn crypto rewards for staking their assets, which can be up to four percent in returns. Staking is offering digital assets like crypto as collateral to validate transactions on a blockchain. In return for taking on the risk of staking, participants are rewarded with coins and tokens. Another regulated Canadian crypto platform that wants to move into staking is VirgoCX. The startup told BetaKit about the plans after it raised $10 million in Series A funding, and was registered as a restricted dealer for crypto assets by the Canadian Securities Administrators in June. Coinbase started offering staking rewards in 2019. In September, Gemini also launched Ethereum staking for its clients. https://bit.ly/3SJiR0K
Global Markets: IPOs, Venture Capital, M&A
Mobileye pops more than 37% in IPO after spinning out of Intel.
Mobileye shares closed up more than 37% in their stock market debut on Wednesday after the maker of technology for self-driving cars was spun out of Intel. In a year that’s seen no significant tech IPOs in the U.S., Mobileye offers investors an opportunity to get in on area of growth. But it’s not a new name for the market. Mobileye was publicly traded before Intel bought the Israeli company in 2017 for US$15.3 billion. At its IPO price of US$21, Mobileye was valued at just US$17 billion, resulting in minimal gains for Intel thus far. The stock, trading under the ticker MBLY, rose to US$27.85 on Wednesday. Intel will retain control of Mobileye and hold over 750 million shares of Class B stock, which has 10 times the voting power of Class A stock. The company said in an Oct. 18 filing that it expected the offering to be priced between US$18 and $20 per share. https://cnb.cx/3FlzNY0
YouTube mega-star MrBeast seeks 10-figure valuation.
MrBeast, the YouTube star turned entrepreneur, is looking to raise around US$150 million for his business at a roughly $1.5 billion valuation, three sources familiar with the conversations told Axios. With 107 million YouTube channel subscribers, MrBeast’s main channel is the fifth most-subscribed YouTube channel globally. His viral internet stunts and challenges, combined with his commitment to testing and iterating each video and its thumbnail, have helped the 24-year-old create one of the most successful YouTube channels in the world. MrBeast began posting YouTube videos more than 10 years ago. Forbes estimates that MrBeast makes more than US$54 million per year. In addition to his own YouTube channel, MrBeast runs Beast Reacts (19.8 million followers), MrBeast Gaming (29.1 million followers), and MrBeast Shorts (16.2 million followers). In 2020, MrBeast launched a food delivery business called MrBeast Burger, which delivers in more than 1,000 locations across the U.S., Canada, and the U.K. Last month, he opened his first physical restaurant for MrBeast Burger, in New Jersey, drawing thousands of visitors to the location on opening day. In January, MrBeast debuted his own snacks business called Feastables, which made over US$10 million in its first few months of operations. https://bit.ly/3DmsCMI
Alphabet posts 6% revenue growth as ad downturn worsens.
Google’s parent company Alphabet reported revenue growth of 6% in the third quarter compared to the same period a year earlier, its second successive quarterly deceleration that suggests advertising pullbacks have worsened. Revenue grew 13% in the second quarter, snapping a six-quarter run of 20%-plus growth. Alphabet CEO Sundar Pichai warned of further reductions in hiring at the company in the current quarter as it adapts to a more challenging economic environment. Alphabet’s free cash flow fell 14.5% to US$16.0 billion in the quarter while operating income at Google fell 17.5% to US$19.7 billion compared to a year earlier. Most notably, YouTube revenue fell nearly 2% to US$7.1 billion, the first time the unit posted a decline since the company began breaking out its revenue in 2019. Shares of Alphabet fell 6.6% in after hours trading. Losses in the Google Cloud unit, the company’s biggest business outside advertising, widened 8.5% to US$699 million. That marked the second consecutive quarter in which losses worsened from the same period a year earlier, and it underscored how difficult it has been for the company to generate profits in contrast to its much bigger rival, Amazon Web Services. Still, Google Cloud’s year-over-year revenue growth accelerated to 37% in the third quarter—to US$6.9 billion—from 35.6% year-over-year growth in the second quarter. That contrasted with a slowdown Microsoft reported in Azure cloud sales in the third quarter, to 35% year over year from 40% growth in the second quarter. In the third quarter, businesses pulled back significantly on spending on Google Search ads amid macroeconomic uncertainty, Alphabet Chief Business Officer Philipp Schindler said on an earnings call with analysts. Some companies have also been more cautious around cloud spending, Chief Financial Officer Ruth Porat said. “In some cases, certain customers are taking longer to decide,” she said. “Some have committed to deals with shorter terms or smaller deal sizes.” https://bit.ly/3fiN7lm
Microsoft’s 11% revenue growth is slowest in five years.
Microsoft on Tuesday said its third-quarter revenue grew 11% from a year earlier to US$50.1 billion, its slowest rate of growth in more than five years. Growth in the company’s Azure cloud-server and software business continued to slow and declines in the sale of its Windows operating system worsened. Net income fell 14% from a year prior to US$17.6 billion while free cash flow fell 9.6% to US$16.9 billion. Microsoft’s stock fell nearly 7% in after-hours trading. The company attributed the weak results to deteriorating demand in the PC market, which hurt sales of its Edge devices and its Windows operating system that runs on PCs, as well as a slowdown in ad spending that dragged down search, news, and LinkedIn advertising revenue. CFO Amy Hood said during a call with analysts on Tuesday that Azure’s margins were hurt by “higher than expected energy costs,” likely a reference to the cost of running Azure data centers. Revenue from the Microsoft unit that includes its Windows operating system fell by less than a percent to US$13.3 billion, dragged down by Windows sales falling 15% compared to the same quarter a year ago, the company said. That was a considerable drop off compared to the second quarter, when Windows revenue fell 2% year over year. Microsoft for the first time revealed revenue from its HoloLens augmented reality headset of US$100 million in the quarter. Meanwhile, sales continued to slow in Microsoft’s cloud segment, which includes Azure and other cloud services. Cloud revenue was up 20% year over year to US$20.33 billion, the same rate of growth as last quarter. Azure revenue grew 35% year over year, compared to 40% growth last quarter and 46% growth the prior quarter. (Microsoft doesn’t break out Azure revenue.) Microsoft expects the slowing PC and ad markets to continue to impact its businesses in the current quarter, she said. While the company’s headcount grew 22% year over year in the last quarter, Hood said its headcount will remain roughly the same in the current quarter. https://bit.ly/3zrwcUz
Amazon’s stock tanks on grim holiday forecast.
Amazon’s stock plummeted as much as 20% in after-hours trading after posting weak growth for the third quarter and providing a bleak outlook for the holidays. While the Internet retailer reported net sales for the third quarter that were up 15% from the same period last year, they came in on the lower side of the company’s guidance for the quarter and below Wall Street’s expectations. But the worse news was Amazon’s expectations for the fourth quarter of between 2% and 8% revenue growth and operating income of between breakeven and US$4 billion. Online sales during the third quarter, which included the company’s annual Prime Day promotion, were US$53.5 billion, a 7% increase from the year-earlier period. (In 2021, the sales event was held during the second quarter.) While revenue for the company’s North American segment increased by 20% year-over-year to US$78.8 billion, net sales for its international business shrank by 5% in the third quarter, thanks to inflation and changes in the foreign exchange rate. https://bit.ly/3ztUBsx
Meta shares drop 19% on weak fourth-quarter forecast and earnings miss.
Meta shares continued their 2022 freefall, plunging 19% in extended trading Wednesday after Facebook’s parent issued a weak forecast for the fourth quarter and came up well short of Wall Street’s expectations for earnings. Meta is contending with a broad slowdown in online ad spending, challenges from Apple’s iOS privacy update and increased competition from TikTok. Add it up, and Meta has posted consecutive quarters of revenue declines and is expected to post its third straight drop in the fourth quarter. Meta’s report is the latest sign of trouble in the online advertising market, which is getting hammered by factors including Apple’s 2021 iOS privacy update and fears of an impending recession. Those concerns have caused companies to slash their marketing and ad campaigns. https://nbcnews.to/3SPuHqb
Big tech investor to Zuckerberg: Meta’s ‘lost confidence of investors’.
Mark Zuckerberg continues to lose support in his massive pivot to the metaverse. At least one prominent investor is now encouraging Meta to cut back on its massive investment in Reality Labs, its metaverse project, saying the company has “lost the confidence of investors.” Brad Gerstner, whose fund Altimeter Capital owns hundreds of millions of dollars worth of Meta shares, published an open letter to Mark Zuckerberg and Meta’s board of directors on Monday, titled “Time to Get Fit.” In the letter, he accuses Meta of drifting “into the land of excess” with “too many people, too many ideas, too little urgency.” In addition, Gerstner wrote that the company’s focus on the metaverse had distracted it from focusing on its core business, which, unlike the company’s Reality Labs segment, generates profit. The past year has been a tumultuous one for Meta. Its metaverse business has reported more than US$15 billion in losses since last year when the company made the surprise announcement that it would rebrand from Facebook to Meta. The company’s stock price is down more than 60% so far in 2022. https://bit.ly/3TGTqhE
UserTesting gains 99% on sale to Thoma Bravo, Sunstone.
UserTesting Inc. rose as much as 99% on Thursday after the digital consumer insight company agreed to sell to private equity firms Thoma Bravo and Sunstone Partners in a deal valued at about US$1.3 billion. The buyout firms agreed to pay US$7.50 per share in cash for the San Francisco-based company, according to a statement Thursday, confirming a Bloomberg News report. That’s about a 94% premium to UserTesting’s closing price of US$3.86 on Wednesday in New York, according to data compiled by Bloomberg. https://bloom.bg/3zrNiS8
Twitter shares to be delisted following Musk takeover.
Twitter formally notified the SEC that it had been acquired by Elon Musk, via his subsidiary X Holdings, and said the stock was now suspended from trading. Twitter shares will be delisted from the New York Stock Exchange on Nov. 8, Twitter said in a securities filing. Musk completed the US$44 billion takeover on Thursday evening, immediately firing CEO Parag Agrawal, chief financial officer Ned Segal, general counsel Sean Edgett and Vijaya Gadde, head of legal policy, trust, and safety. Bloomberg reported later that Musk intends to appoint himself CEO. Musk is expected to change Twitter’s content moderation rules, as well as allowing Donald Trump back on Twitter. Separately, Musk is expected to lay off some portion of Twitter’s workforce, which stood at 7,500 at the end of December. https://bit.ly/3DK5Wra
Tesla faces U.S. criminal probe over self-driving claims.
Tesla is under criminal investigation in the United States over claims that the company’s electric vehicles can drive themselves, three people familiar with the matter said. The U.S. Department of Justice launched the previously undisclosed probe last year following more than a dozen crashes, some of them fatal, involving Tesla’s driver assistance system Autopilot, which was activated during the accidents, the people said. As early as 2016, Tesla’s marketing materials have touted Autopilot’s capabilities. On a conference call that year, Elon Musk, the Silicon Valley automaker’s chief executive, described it as “probably better” than a human driver. https://reut.rs/3DT4xi9
Apple flexes its control over the App Store.
In its changes this week, Apple updated its App Store rules to give itself a cut of some advertising revenue in social media apps and purchase revenue from Web3 apps. The company also expanded the scope of its App Store advertising in ways that further intrude on the presentation of developers’ own apps. The most aggressive change was a direct shot at Meta. Now, anyone who buys an in-app ad from within the app itself — like a Facebook or Instagram “boost” to better surface a post — will have to use Apple’s in-app purchasing system, sending a 30 percent cut of the payment to Apple. There’s a carveout for ad management apps, but the broader effect is that a key purchase funnel now has to go through Apple. It’s a particularly frustrating thing for social apps like Meta, which are already dealing with the effects of Apple’s “Ask App Not to Track” prompt. (Meta estimated earlier this year that the prompt will cost it about US$10 billion in ad revenue.) Apple also takes a cut of NFT sales with these new rules. If an app sells NFTs, it must use Apple’s in-app purchase system. Trading volumes for NFTs have fallen dramatically throughout 2022, so this may not have as big of an impact as it would have earlier in the year. But for those who are continuing to try to make NFTs a thing, selling them via iPhone apps means you won’t get as much money as you would have before. https://bit.ly/3gVbCW1
Alibaba falls to 6-year low as Chinese President Xi secures 3rd term.
Alibaba, Nio and other US-listed shares of Chinese companies tumbled Monday on concerns about China’s growth prospects as President Xi Jinping secured his third term overseeing the world’s second-largest economy. The ruling Communist Party ended its twice-a-decade congress with Xi on Sunday putting loyalists into his core team. Investors are “running for the exits” after Xi’s predecessor Hu Jintao was publicly escorted out of the Communist Party’s meeting. Shares of Chinese tech companies ran lower as that sector has been subjected to a crackdown by Beijing regulators, who have cited concerns about anti-competitive behavior and security issues. E-commerce company Alibaba fell as much as 13% to US$62.60 on the New York Stock Exchange, hitting lows not seen since 2016 before paring the loss to 11.5%. Electric vehicle maker Nio lost as much as 11%, falling to US$9.75 before trimming the decline to 9.3%. Hong Kong’s Hang Seng Index fell to a 14-year low as the equity gauge lost more than 7% during the session. https://bit.ly/3zjrZCk
VC-funded China-based companies with recent US IPOs down over 90%.
Even before this past week, shares of China-based companies that went public on U.S. exchanges in recent years were performing terribly overall. But China’s President Xi Jinping’s latest moves to consolidate power haven’t helped things. A Crunchbase analysis of 17 venture-funded companies from China that went public on Nasdaq and the New York Stock Exchange in the past two years showed an average decline of 91% from IPO price to now. In the process, they’ve wiped out over US$145 billion in collective market capitalization. On the heels of losses, investors have been pulling back. In the third quarter of 2022, venture funding in Asia sank to its lowest level in 10 quarters, per Crunchbase data. China’s startups saw only US$9.6 billion invested last quarter, compared to US$18.5 billion in the same quarter of 2021. The number also is down from the US$9.8 billion invested in Q2 and a dramatic drop from the record US$27.9 billion investors poured into China startups in Q4 2021. https://bit.ly/3DjanaL
China smartphone shipments slid 11% in Q3, research firm says.
Smartphone shipments in China fell 11% year-on-year in the third quarter as the country’s slowing economy took a toll on consumer demand, research firm Canalys reported on Thursday. Brands shipped a total of 70 million smartphones to sellers in the period, down from 78.9 million in same period last year. While Apple Inc. was the only brand to buck the trend, with shipments jumping 36% to 11.3 million, analysts say that the surge was due to demand for the iPhone 14 Pro model, and demand for the basic iPhone 14 model has been weak. Vivo, owned by the Shenzhen-based conglomerate BBK, was the top-ranked brand in the quarter, shipping 14.1 million devices and taking a market share of 20%. The top three brands – vivo, OPPO, and Honor – saw shipments fall 23%, 27%, and 16% respectively. Apple currently ranks as the fourth top-selling brand in China, with a market share of 13%. https://reut.rs/3sBbpdn
Meta will launch a Quest 2 successor next year.
A follow-up to the Quest 2 virtual reality headset is arriving next year, Meta said in its most recent earnings announcement. The device will be a consumer-grade headset unlike the recently released Quest Pro, which costs US$1,500 and comes with mixed-reality features designed to be useful in the workplace. Meta snuck the detail into a paragraph concerning the ballooning costs of developing its vision for the metaverse. Meta’s AR and VR roadmap has been shifting of late, though the company has long hinted at an eventual successor to the Quest 2, which has sold an approximate 15 million units per estimates from industry tracker IDC. For the quarter, the Reality Labs division, which includes AR and VR hardware as well as software platforms like Horizon Worlds, incurred a loss of US$3.7 billion, up from US$2.6 billion a year ago and increasing by nearly US$1 billion from fiscal Q2. Brad Gerstner, CEO of activist investor Altimeter Capital, recently called on Meta to cut its head count and limit metaverse spending to US$5 billion a year. https://bit.ly/3szHy51
New tech enables standard EV batteries to charge to 70 percent capacity in 11 minutes.
Standard electric-vehicle batteries can recharge much of their range in just 10 minutes with the addition of a thin sheet of nickel inside them, a new study finds. This could provide a welcome and economically attractive alternative to expensive EVs that carry massive and massively expensive battery packs. If faster-charging options were available, enabling the EV’s sticker price to drop substantially, some researchers suspect consumers’ EV phobia and industry dogma against “range anxiety“ could be overcome. For instance, a conventional long-range EV with a 120-kilowatt-hour pack that requires an hour to recharge could be replaced with an EV with a 60-kWh pack capable of 10-minute fast charging while preserving a very similar travel time during long-distance trips. https://bit.ly/3SRJwZ8
Merck pays Moderna US$250 million for personalized cancer vaccine.
Part of the original agreement specified that if Moderna could complete proof-of-concept studies of mRNA-based personalized cancer vaccines in humans, Merck had the option to pay an undisclosed amount to co-develop and commercialize the shots with Moderna. Since then, mRNA has proven itself with the development of COVID-19 vaccines, and many other vaccines are in development. And now, based on that success, they’re moving ahead with cancer vaccines, too. Merck is now exercising its option on mRNA-4157, a personalized cancer vaccine in a phase 2 clinical trial for skin cancer. It’s being studied in combination with Merck’s cancer treatment Keytruda, a humanized monoclonal antibody. https://bit.ly/3SPSi9Y
Media, Streaming, Gaming & Sports Betting
Apple Music, Apple TV+ and Apple One prices increasing.
Apple is increasing the prices of its Apple Music and Apple TV+ subscription services. The Apple One bundle price is also rising in unison. The Apple Music monthly price has been upped by ~US$1 for individuals and ~US$2 for families. Apple TV+ is rising by $US2. Apple One is also going up by approximately US$3 per month. This represents the first time Apple has raised the subscription price of Music, TV+ and Apple One in the United States. Apple said the increase in Apple Music subscription price was due to increased licensing costs. The company said artists and songwriters will earn more per stream as a result of the pricing tier changes. Regarding Apple TV+, the company said the increased price reflects the growing catalog of original TV shows and movies. https://bit.ly/3TTHvfS
Spotify boosts subscribers and revenue, says 2023 price increases likely.
Chief Executive Daniel Ek said in an interview Tuesday that subscribers can expect price hikes for the service sometime in 2023. The premium service in the U.S. has cost US$9.99 since Spotify was launched in the U.S. in 2011. Spotify has implemented dozens of price increases in markets around the world without losing customers, said Mr. Ek. Apple Inc. on Monday increased the subscription price in the U.S. for its music service by US$1 a month, the first of any major company to break from the long-held $9.99 a month for individual users. “We have the same pricing power in the U.S.,” said Mr. Ek, adding that Spotify will aim to reach an agreement with label partners that is advantageous from both sides. For its third quarter, Spotify reported 456 million monthly active users, up 20% from a year earlier and above the company’s guidance. Paying subscribers, Spotify’s most lucrative type of customer, climbed 13% to 195 million, also exceeding the company’s expectations, thanks to promotions and household plans. Spotify shares fell nearly 6% in aftermarket trading Tuesday. https://on.wsj.com/3sHhncx
Twitter knows its most active users are in ‘absolute decline’.
Twitter’s “heavy tweeters” — who make up less than 10% of users but post 90% of the platform’s tweets — are disappearing from the site, says an internal company research report, according to Reuters. It defines heavy tweeters as users who log in to Twitter six or seven days per week and tweet around three to four times per week, Reuters reported. This dwindling population of active users generates half of Twitter’s global revenue, the report added, per Reuters. On the other hand, cryptocurrency and NSFW, or not safe for work, content have been the fastest growing topics of interest in the last two years, per Reuters, citing the internal report. https://bit.ly/3TXJeB2
Microsoft says more than 20 million people have used Xbox Cloud Gaming.
More than 20 million people have streamed games using Xbox Cloud Gaming, Microsoft CEO Satya Nadella said Tuesday during the company’s first-quarter fiscal 2023 earnings call. That’s double the 10 million figure Microsoft shared earlier this year, just before Epic Games and Microsoft partnered up to bring Fortnite to Xbox Cloud Gaming. It’s clear that partnership has boosted Xbox Cloud Gaming, particularly because it’s the only game that’s available free via the service and doesn’t require an Xbox Game Pass Ultimate subscription. For now, Microsoft is working on keyboard and mouse support for Xbox Cloud Gaming while bringing the service to Meta Quest VR headsets and working on expanding the titles available to your game library later this year. https://bit.ly/3DFJRtS
Microsoft says Xbox Game Pass is profitable as it sees subscription growth slow.
Microsoft Gaming CEO Phil Spencer has revealed that the company’s Xbox Game Pass subscription service is already profitable. Speaking at The Wall Street Journal’s Tech Live conference, Spencer also revealed that Xbox Game Pass is around 15 percent of Microsoft’s overall Xbox content and services revenue. Spencer says he now expects Xbox Game Pass to stay at around 10–15 percent of Microsoft’s Xbox content and services revenue and that “it’s profitable for us.” “Game Pass as an overall part of our content and services revenue is probably 15 percent,” says Spencer. “I don’t think it gets bigger than that. I think the overall revenue grows so 15 percent of a bigger number, but we don’t have this future where I think 50–70 percent of our revenue comes from subscriptions.”mIt’s a rare insight into Microsoft’s Xbox console and Game Pass subscription businesses, particularly as Spencer suggests Xbox Game Pass won’t dominate Microsoft’s gaming revenue. https://bit.ly/3DhJaFq
TikTok gaming push will be an “enormous” one; post Nov 2 launch.
TikTok gaming has so far been a very small part of the streaming video app, but the company is said to be just days away from announcing an “enormous” push into the games market… TikTok has offered games to Chinese users since 2019, but in a rather low-key way. It brought a handful of games to the rest of the world in 2021, still without much fanfare or discoverability. Back in May, we first heard that the company was planning to get more serious about it, expanding its partnership with Zynga to offer HTML-5 based games. The company tested these games with TikTok users in Vietnam. It’s expected that the company will officially announce the move at a special event on November 2, dubbed “TikTok Made Me Play It.” Gaming companies Electronic Arts, 2K, VNG Corporation, NetEase Games, and Homa are all said to be sending speakers. https://bit.ly/3DHjnYL
Amazon adds option for shoppers to pay with Venmo.
Amazon announced Tuesday it would begin offering shoppers the ability to pay for items with Venmo at checkout, sending Venmo owner PayPal’s shares up more than 6%. The launch of the high-profile partnership is a boost for PayPal, whose shares have tumbled more than 50% this year as e-commerce growth slows following a boom during the pandemic. Venmo, which counts 90 million U.S.-based users, has already been expanding beyond the peer-to-peer payments it’s best known for by partnering with businesses including Poshmark, Uber, Lyft, DoorDash and Urban Outfitters. “This is a very significant moment in our Venmo monetization journey,” PayPal CEO Dan Schulman wrote in a post on LinkedIn. Amazon said the feature has already begun rolling out to customers, and that it would be available to all U.S. shoppers by Black Friday on Nov. 25. After linking their Venmo account with their Amazon account, users can pay for their purchase using their Venmo balance, as well as their bank account or debit card linked to their Venmo profiles. The partnership could also help Amazon boost transactions by providing another popular payment option on its site. Amazon also has a partnership with Affirm, which allows shoppers to use the buy now, pay later service to split up their Amazon purchases into installments. That partnership began in August of 2021. https://bit.ly/3Nh7NGQ
Fintech, Blockchain & Cryptocurrency
App Store guidelines updated with new rules for NFT, ad managers.
Following the release of iOS 16.1 and other software updates on Monday, Apple has updated the App Store guidelines to revise some existing rules and add new ones. The updated guidelines now have specific mentions of apps with NFTs, as well as introducing new rules for advertising management apps. When it comes to non-fungible tokens, also known as NFTs, Apple makes it clear that apps can sell related content using the App Store’s in-app purchase system. However, they can’t “direct customers to purchasing mechanisms other than in-app purchase.” According to Apple, apps designed exclusively to let advertisers manage their campaigns no longer need to use the App Store’s in-app purchases system. Other highlights include a new guideline that prohibits developers from capitalizing or seeking to profit on recent events such as violent conflicts, terrorist attacks, or epidemics. https://bit.ly/3zij4ky
Andreessen Horowitz went all in on crypto at the worst possible time.
The storied venture-capital firm had developed a reputation as Silicon Valley’s greatest crypto bull, thanks largely to a 50-year-old partner named Chris Dixon who was one of the earliest evangelists for how the blockchain technology powering cryptocurrencies could change business. His unit was one of the most-active crypto investors last year, and in May announced a US$4.5 billion crypto fund, the largest ever for such investments. The timing wasn’t good. Prices for bitcoin and other cryptocurrencies have plunged this year in the midst of a broad market downturn, erasing billions of dollars in paper gains for Andreessen’s funds. Consumer demand has vanished for some of the firm’s most-prized crypto startups, while others are facing increased scrutiny from regulators. https://on.wsj.com/3FjSg7p
TSMC halts production for Chinese chip startup amid U.S. restrictions.
Taiwan Semiconductor Manufacturing Co. has suspended its production of advanced chips for Chinese startup Biren Technology to comply with the U.S. government’s new regulations, Bloomberg reported. The move comes after the Biden administration earlier this month announced new restrictions on exports of advanced chip technology to China. According to Bloomberg, TSMC, the world’s largest contract manufacturer of chips, has suspended its work for Biren even though it hasn’t reached a conclusion on whether the Chinese customer’s chips would be subject to the U.S. restrictions. Biren, whose backers include major venture capital firms such as Source Code Capital and IDG Capital, mainly develops graphics chips that power artificial intelligence. The impact on the global semiconductor supply chain from Washington’s new rules continues to expand. Chinese chipmaker Yangtze Memory Technologies has asked its American staff to leave, the Financial Times reported, as the new rules limit U.S. citizens’ involvement in the development of certain chips for Chinese companies. Last week, U.S. chip manufacturing equipment maker Lam Research said the negative impact on its revenue next year from the U.S. government’s restrictions on chip technology exports to China could be in the range of US$2 billion to US$2.5 billion. https://bit.ly/3Nk3P0i
GM is delaying its plan to build 400,000 EVs in North America.
The General Motors Company has pushed back plans to build as many as 400,000 EVs in North America because it has not been able to ramp up battery production as quickly as the company expected. “All of our 2023 launches are progressing well. However, due to a slightly slower launch of cell and pack production than we expected, our plan is now to produce 400,000 EVs in North America over the course of 2022, 2023, and the first half of 2024,” CEO Mary Barra told investors Tuesday, in a call announcing GM’s third quarter results. Barra told investors in February that GM planned to make 400,000 EVs in North America through 2023, per Automotive News. The new forecast puts that forecast back by around six months. During the earnings call, Barra said the company is working to secure its future supply chain through strategic supply agreements and direct investment, including an agreement with Queensland Pacific Metals of Australia, announced in October, to secure nickel and cobalt. https://bit.ly/3FiBllD
Tesla cuts China prices by up to 9% as analysts warn of ‘price war.
Tesla has cut starter prices for its Model 3 and Model Y cars by as much as 9% in China, reversing a trend of increases across the industry amid signs of softening demand in the world’s largest auto market. The price cuts, posted in listings on the electric vehicle (EV) giant’s China website on Monday, are the first by Tesla in China in 2022, and come after Tesla began offering limited incentives to buyers who opted for its insurance last month. Shares of the Austin, Texas-based firm were down 4.9% at $203.9 in early trade. The price cuts also follows Tesla Chief Executive Elon Musk’s comment last week that “a recession of sorts” was under way in China and Europe, and Tesla said it would miss its vehicle delivery target this year. Tesla had cut prices in China last year in an effort to be more competitive in the country, while in the United States, its largest market, the EV maker has raised prices over the past year on higher cost of raw materials. The U.S. automaker and several Chinese rivals have hiked prices several times since last year amid rising raw material costs. But Tesla has regularly adjusted prices of its cars in China, including reductions, reflecting government subsidies. Tesla is now China’s third best-selling EV maker after BYD Motor and SAIC-GM-Wuling, and is the only foreign player in the top 15 list published by the China Passenger Car Association. https://reut.rs/3DJSeEB
Sophic Capital Client Insights
Sophic Client Kraken Robotics (PNG-TSXV, KRKNF-OTC): Russia and China Droning for Sea Dominance.
In Sophic Capital’s Unmanned Underwater Vehicles – The Most Challenging Technologies to Develop report, we illustrated why developing unmanned underwater vehicles (UUV) is more challenging than developing spacecraft. We also stated that implementing UUVs can lower operational costs for navies as well as save lives. For these reasons, navies across the world have embarked upon UUV programs and deployments. In this report, we examine Russian and Chinese UUV developments. We’ll follow this with a report about major UUV developments in other navies, a report about UUV OEMs, and then a final report about Sophic Capital client Kraken Robotics [TSXV:PNG, OTC:KRKNF], whom we believe is THE global leader in UUV sensors and systems. https://bit.ly/3fo7GN8
Sophic Client Kraken Robotics (PNG-TSXV, KRKNF-OTC): Bottoms Up for Navies.
In Sophic Capital’s Russia and China Droning for Sea Dominance report, we discussed how Russia and China were bolstering their marine presence with unmanned underwater vehicles (UUVs). In this third of five reports, our focus shifts to how the rest of the world is enhancing their subsea national security, which will be followed by an update on how UUV companies have evolved over the last 7 years. We will then tie this all back Sophic Capital client Kraken Robotics [TSXV:PNG, OTCQB:KRKNF] and how these market forces are driving their growth. https://bit.ly/3sEdHbx
Sophic Client Kraken Robotics (PNG-TSXV, KRKNF-OTC): Deep Dive on Underwater Drone Manufacturers.
In Sophic Capital’s Bottoms up for Navies we discussed how key countries are investing in subsea defence to safeguard the worlds waterways. In this fourth report in our series, we highlight companies in the defence and commercial marine technology markets and how their businesses have grown. We will then conclude with a final report about Sophic Capital client Kraken Robotics [TSXV:PNG, OTCQB:KRKNF], laying out the investment thesis. A lot has happened to the UUV industry since we first wrote about it in 2014. Some firms were no more than shots across the bows; others were dead in the water; while many rocked the boat. We wrote about those in the latter group in 2015 and provide updates on what they’ve done since. https://bit.ly/3gI9H7e
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