???? Hype-based Meat Alternatives ?? Hawkish Skip; AMD's AI in Amazon Cloud?; News ON TikTok, Google Eurotroubles ?? Initial Public Offerings (IPOs)

• US large-cap S&P 500 closed 0.08% UP ▲
• Tech-heavy Nasdaq Composite closed 0.39% UP ▲
• Pan European STOXX Europe 600 closed 0.36% UP ▲
• HK/China's Hang Seng Index closed 0.58% DOWN ??
• Japan's broad TOPIX closed 1.31% UP ▲

?? Focus

• Hype-based Meat Alternatives

?? In the Markets

• Hawkish Skip
• AMD's AI in Amazon Cloud?
• News ON TikTok, Google Eurotroubles

?? MoneyFitt EXPLAINS

• ?? Initial Public Offerings (IPOs)

?? Focus

Hype-based Meat Alternatives

Globally, according to the Lancet medical journal, the average per-capita consumption of meat is still increasing. But it is beginning to decline in some high-income countries, where the UN FAO (Food & Agriculture Organisation) reports “demand is anticipated to level off or trend lower given ageing populations and greater dietary concerns that seek more diversity in protein sources.” For example, people in Germany, on average, ate 52 kg of meat in 2022, 4.2 kg less than in the previous year, according to the Federal Information Centre for Agriculture (BZL), the lowest since records began in 1989. Bloomberg recently reported that a meat plant producing B?rchenwurst, German kids' beloved bear-shaped cold cut, is closing down due to rising costs and falling demand, with more and more German vegetarians and flexitarians.

.....? So the stage has been set for explosive growth in plant-based meats and alternative dairy. Sure enough, companies rushed to meet the new demand, and a few of them have made it to the stock market, boosted by enormous hype about saving the planet, the "sustainability halo":

?- Beyond Meat’s 2019 IPO?? was one of the most successful in the US since 2000. Priced at US$25 a share, it raised $241 million and surged to over $65 for a first-day pop of 163%. Its IPO was oversubscribed by 30x (meaning that technically it could have raised over $7 billion.) It went on to top out 2 months later at $235, 9.4x the IPO price!?

?- Two years later, Sweden's Oatly, a leading oat milk brand, raised $1.4 billion in an IPO?? which was 10x oversubscribed (demand was for $14 billion.) Oatly's stock price popped 17% on the first day from its IPO price of $17. A month later, it was at $29, up 70% from the issue price.

- Alas, Beyond Meat is now at $13.5, barely over half its IPO price and down by 94% since its peak, while Oatly is trading at just $2. What happened? There was company-specific newsflow, like Dunkin Donuts removing Beyond's sausages from the breakfast menu and a potential deal with McDonald's falling through, and Oatly’s supply chain problems and a recall due to bacterial contamination. But mainly, the disappointment has come from both companies' ongoing lack of profitability.?

.....? Plant-based alternatives by Beyond Meat, Impossible Foods and others, even when selling at prices only slightly above real meat products, have not caught on with consumers as quickly as investors had been led to expect, with high inflation adding to the pressure. Beyond Meat has continued to burn through cash and, after five consecutive quarters of declining year-over-year revenues, is looking to raise $200 million more through selling additional new shares and Oatly's CEO continues to pick growth over profits. Overall, plant-based alternatives financial backers, like venture capital funds, seem to have latched onto climate change and health concerns from investors at just the right time to raise a lot of money and then exit, leaving overhyped IPO investors sitting on enormous losses.

"You get plenty of meat at home"

- Image credit: National Lampoon's Vacation (1983) / Warner Bros. via Tenor

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Writer: Alexis Kong, NUS Business School, 2024

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?? In the Markets

A Hawkish Skip! At first glance, the US market looks to have yawned at the widely expected decision not to raise interest rate hikes, but during the trading session, markets actually whipsawed quite a bit. After 10 consecutive increases over 15 months, the pause was welcome, but with underlying inflation expected to remain stickier too, rate-setters are expecting two more 0.25% rate hikes this year, with the next possibly as early as next month.?

"Inflation has not really moved down. It has not reacted much to our existing rate hikes. We're going to have to keep at it (but) It seems... to make obvious sense to moderate our rate hikes as we got closer to our destination." - Federal Reserve Chairman Jay Powell

..... ? Fed chair Jay Powell said: “Nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation to 2 per cent over time.” Not a single one forecast a rate cut this year. So holding rates steady is more of a “skip” (will hike unless data clearly says not to) than the widely-expected “pause” (wait and see) or even "hawkish pause" (watching data to decide whether to hike) and certainly not the hoped-for "dovish pause" (watching data to decide whether to cut.) In the new projections, most Fed officials now project “core” inflation to decline at a slower pace than before in the face of much higher growth this year, with the economy expanding by 1%, well above the 0.4% estimated in March and forecasts just last month of a “mild recession" this year.

Hawks and Doves - a mini-explainer:

- "Hawks" are central bankers who believe that controlling inflation is the top priority, while "Doves" are more interested in economic growth (and minimising unemployment.)?

- Raising the interest rate, which is basically the price of money, reduces inflation because it makes it more expensive for businesses to grow and pushes consumers to spend less (and save more.) This eases domestic price and wage pressures in an economy. Particularly tricky are inflation expectations on wage negotiations, as they can lead to a vicious cycle. A weaker economy is a feature, not a bug, as they say, but the trick is to avoid a painful recession.

Still hawkish

- Image credit: Tenor

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AMD's AI in Amazon Cloud? Last month news emerged that Microsoft would be working together with AMD to develop AI chips (where Microsoft provides engineering resources to support AMD as, according to Bloomberg, the companies "join forces to compete against Nvidia.")? On Wednesday, at an AMD event, Amazon Web Services (AWS) was reported to be considering using new AI chips from Advanced Micro Devices (AMD) for its cloud computing services, although no final decision has been made.?

.....? While trillion-dollar AI chip giant Nvidia (see yesterday's MFM) offers entire systems designed by the company, AWS prefers designing its own servers from the ground up, which falls into AMD's AI strategy of letting customers pick and choose which components they want, using industry-standard connections and then offering a design that plugs into existing systems.

Google's Eurotroubles: Google is the dominant digital advertising platform with 28% of global ad revenue, but may have to sell a portion of its ad-tech business to address the EU antitrust regulator's charges about anti-competitive practices, like favouring its own advertising services. The trouble is that Google also controls the tools most commonly used by both websites selling ad space and marketers buying ad space on websites across the internet, a huge conflict of interest (the US Department of Justice is also targeting Google for.).?

.....? If found guilty, Google could face a fine of up to 10% of its annual global turnover. Google, of course, disagreed, emphasising that the EU is focusing on a narrow aspect of its advertising business. Advertising (Search, Gmail, Google Play, Google Maps, YouTube adverts, Google Ad Manager, AdMob and AdSense) accounted for 79% of Google's total revenue last year, though the network ad business (selling ads on other properties) is only a relatively small fraction of that compared to what's sold on its own sites.?

News from TikTok: Bytedance's TikTok is the fastest-growing social network for news among 18- to 24-year-olds, according to a report by the Reuters Institute for the Study of Journalism. Younger age groups prefer obtaining news through social media, search engines, and mobile aggregators, with audiences paying more attention to celebs, influencers, and social media personalities.?

.....? People also slightly prefer to have their news chosen by algorithms than by editors or journalists, but overall the survey also showed a decrease in interest in news, with less than half of the respondents expressing much interest and the number of people worldwide accessing news through websites or apps has declined by 10% since 2018.?

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MoneyFitt EXPLAINS?

?? Initial Public Offerings (IPOs)

An IPO is when a privately owned company sells new shares to the public and institutional investors (including mutual or hedge funds, pensions, banks, insurance companies, trusts and sovereign wealth funds. Main ones in “the book” are called "cornerstone" or "anchor" investors.)

Shares need to fulfil certain disclosure and other requirements to get "listed" on a stock exchange where they can be traded. To help the company through this process, an IPO is "underwritten" by investment banks, who also find buyers for the shares and help set the price.

The main reason for having an IPO is for the company to raise money by selling shares in itself so it can grow its business. Almost as important, it's a way for existing shareholders and management to sell their shares and receive money themselves. A third reason is to have something tradeable to incentivise staff with.

IPO prices are usually set high enough to raise enough money but low enough for the shares to go up "in the aftermarket" on buying by investors who didn't get as many as they originally wanted. This is reflected in the subscription multiple (the number of shares desired divided by the number on offer.)

Everyone likes IPOs shooting up, especially management, the banks and IPO investors (though, in a way, it means it was underpriced.) There's no guarantee that it will, but banks do sometimes legally "support" the share price in the market afterwards.