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Market Scorecard

When looking at local shares trading at a 12-month high, Richemont is one stock that stands out because mining companies completely surround it. Richemont closed at R122 yesterday. Just a few days ago it was at R111. The all-time high for the company is around R130, so it might even get above that mark.

Why is the stock up 8% in three days? Rumours are floating around that their competitor, LVMH (PA:LVMH) might be sniffing around to buy the company. LVMH was meant to buy Tiffany's, but Covid and politics seem to have scuppered the deal. Both sides are now suing each other. The result is that LVMH is rumoured to be on the hunt for another company to bulk up their jewellery division. In most cases, rumours are just that, and they don't result in anything.

Yesterday the JSE All-share closed up 0.43%, the S&P 500 closed up 1.27%, and the Nasdaq closed up 1.87%.

One Thing, From Paul

I follow a guy called Matthew Yglesias on Twitter (NYSE:TWTR). He is the co-founder of Vox, a news and opinion website. He has just written a book called "One Billion Americans: The Case for Thinking Bigger", which sounds interesting.

The central premise is that population size is power, and that to stay on top the US needs more immigration and more babies. I like the first idea, as I am against nation-state boundaries, on principle. I hate visas and borders.

Vastly increasing immigration to the US would go against recent trends. In 2018 the US only allowed in about 200 000 people, a decline of more than 70% from the year before. However, a recent Gallup survey showed that support for increased immigration is now at the highest level (34%) it has been since 1965.

Women in the US currently have 1.8 children, on average. Yglesias argues that it's too expensive to have more, and proposes some ways to offset that.

Space is not a problem. There are roughly 93 people in the US per square mile, far fewer than a densely populated country like Belgium which has 976. However, housing supply in the US is really constrained, mostly because zoning laws are too restrictive.

But what about the carbon footprint, I hear you say? True, that would be a concern, unless the shift to renewable energy usage accelerates. Anyway, it's thought provoking. And what about South Africa?

Byron's Beats

Google (NASDAQ:GOOGL) is well ahead of other big multinationals when it comes to their carbon footprint. In fact they became carbon neutral all the way back in 2007 - an amazing achievement! But remember they are a platform so it is slightly easier to become carbon neutral then say a manufacturing company.

Now their goal is to have a net neural carbon footprint over their entire lifetime and to only use carbon free energy by 2030 according to Tech Crunch. Remember you can buy carbon credits or you can invest in separate green projects to negate your current carbon emissions. Not too difficult for a company with over $100bn in cash.

The 2030 goal is to use only carbon free energy without purchasing credits or investing in external projects. This means that all their campuses, offices and data centres which service all their products must be off the grid 100% of the time. This is an ambitious goal and a first of its kind for a company that size. Well done Google.

Michael's Musings

In economics, you are taught that for any product/service, there is a vast range of prices that consumers are willing to pay. Take bread for example, which retails for around R20 a loaf. There are people who would be willing to pay R40 for a loaf, and there are some people who won't pay more than R10 for a loaf. The goal of marketers is to try create mechanisms where a company can sell their products at many different price points, without having a case where those who are willing to pay a premium end up paying a discount. Unfortunately, for most companies they are forced to pick one price point.

Netflix (NASDAQ:NFLX) has come up with a clever way to add more subscribers to their service by creating a discount version - New Netflix plans launched in South Africa - From R39 per month. These lower cost plans have two important distinctions. The first is that you can only watch Netflix on your phone or laptop, and second, the video quality is at a lower resolution. The marketing department has taken the view that those willing to pay more for Netflix, will probably want to watch it on their TV and in Ultra-HD. Those on the discount spectrum, are probably watching on a mobile device and have a limited amount of data.

Effectively, the cost of creating the Netflix product is in their cost of show production. In 2020 the company is expected to spend around $17 billion on content creation! The implication is that they have very high fixed costs and very low variable costs. Given that the variable cost of adding a new subscriber is minimal, every new subscriber is basically pure profit that falls to the bottom line. The goal for Netflix is to have the maximum number of subscribers, where those willing to pay a premium, do pay extra, but also providing a platform for those customers who can only afford a discount option.

Bright's Banter

Cloud-based data-warehousing startup Snowflake Inc. announced last week that it will be coming to public markets in one of the largest IPOs of 2020. The San Mateo, California based tech firm expects to raise $3.08 billion as it floats its shares between $100 and $110 which will value the business between $27.7 billion and $30.5 billion.

This is much higher than the initially expected debut valuation, which had an upper limit of 23.7 billion. The Snowflake IPO has gotten so much media buzz thanks to Warren Buffett's Berkshire Hathaway (NYSE:BRKa) and Marc Benioff's Salesforce Ventures, of which both are said to have agreed to buy $250 million worth of shares at the IPO price.

Berkshire also agreed to buy a further 4.04 million shares in a secondary transaction from Snowflake's former CEO Bob Muglia. This would take Berkshire's stake to around $674.3 million if we use the midpoint of its IPO price. Snowflake was last valued at $12.5 billion in private markets but thanks to people working from home, demand for the services has boomed.

Snowflake's revenues for the first half of 2020 were $242 million, more than double its $104 million revenues from a year earlier. The business helps store and access data in the cloud for businesses without having to rely on databases linked to some hardware. The good news for Vestact clients is that Snowflake uses AWS to host a significant part of its business.

Signing Off

Global markets had a good Monday and look set to have a green Tuesday too. Chinese retail sales and industrial production in August were both ahead of expectations when released this morning. The JSE All-share is higher this morning and the Rand is slightly stronger than yesterday, trading at $/R16.62.

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