Strikepoint + Kraken | September 11th, 2024

Today's insights are courtesy of SURF Air Mobility, they are Los Angeles-based electric aviation and air travel company expanding the category of regional air travel and reinventing flying through the power of electrification.

Learn More Here ➔

GOOD MORNING

Here's everything you need to know today: Apollo and State Street might have just found their next m̶a̶r̶k̶s̶ revenue stream: retail investors. With combined trillions of assets under management, private equity giants need a new exit plan for their private credit exposure, so why not try an ETF targeting individuals who may not fully grasp the risks of illiquid, high-fee investments?

Private equity firms are sitting on trillions of dry powder but aren’t exactly rushing to deploy it. Institutional buyers? They’re maxed out. So, Apollo and State Street are looking to regular folks to fuel the next leg of their growth. Private credit means higher fees, but with a twist: you can’t exactly trade out of these investments like stocks…. yet.

As giants like BlackRock and Franklin chase fatter margins in alternatives, Apollo and State Street are banking on retail investors to bite. Sure, these products are tough to sell, but the firms need someone to carry the private credit bag, and those retail-focused ETFs are so hot right now.

Let’s Dive Into More Details Below…

BREAKING NEWS
Nelson Peltz, born in 1942 in Brooklyn, New York, has journeyed from delivery truck driver to corporate titan—a quintessential American success story built on his family’s food distribution business. After a brief stint at Wharton, Peltz joined A. Peltz & Sons in 1963, quickly rising from the driver’s seat to the boardroom. Over the next 15 years, Peltz, along with his brother Robert and partner Peter May, transformed the company from a modest produce distributor into a frozen food powerhouse with $150 million in annual sales.

This early success solidified Peltz’s reputation as a sharp business mind and set the stage for his career as a powerful activist investor. Most notably, he served as chairman of Wendy’s for 17 years, a reign he officially ended Monday.

According to Wendy’s, Peltz is stepping down to focus on other board commitments and future activities with Trian Fund Management, which he co-founded in 2005. The timing is interesting—Wendy’s stock is down almost 15% this year amid reports of consumers pulling back on fast food. Now, the Board has tapped Arthur B. Winkleblack as non-executive Chairman and Pepsi veteran Kirk Tanner as CEO to steer the brand through its next chapter.

WHAT HAPPENED
Peltz’s influence on Wendy’s has been nothing short of legendary… and by “legendary,” we mean two decades of strategic chess moves and corporate gutting. Ever since Trian Fund Management jumped into Wendy’s in 2005, snapping up 5.5% of shares, Peltz has basically been calling the shots.

During his reign as CEO and Chairman from 1993 to 2007, and later as non-executive Chairman until September 2024, Peltz wielded significant ownership stakes, at one point holding a whopping 21% of Wendy’s stock. By September 2024, he and Trian still clung to a formidable 15% stake, but Peltz’s gradual fade from the Wendy’s scene was already underway.

Some of the greatest hits from the Peltz/Wendy’s saga include his 2007 prediction that Wendy’s stock would hit $75, a number it reached post-Tim Horton’s spinoff. Dividends have been a constant under his watch, with Wendy’s cranking them out for 22 years straight. And let’s not forget his $300 million marketing push at Heinz, where he famously suggested ditching those annoying ketchup packets. Turns out, there’s drama behind every condiment.

Now, Peltz is stepping back—he cut Wendy’s holdings by nearly 600,000 shares in August, and with his recent billion-dollar Disney score, the 82-year-old might be heading for a quieter life. But with Peltz fading, new CEO Kirk Tanner has a heavy plate to manage while going toe-to-toe with McDonald’s, Chipotle, and the rest of the fast-food giants.

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Remember when Tesla disrupted the auto industry? Buckle up, because Surf Air Mobility (NYSE:SRFM) could have the potential to do the same for aviation.

Here's why SRFM is cleared for takeoff:

• First-Mover Advantage: Already the largest US commuter airline by scheduled departures, now developing technology to electrify existing aircraft

• Powerhouse Partnerships: Exclusive relationship with Textron Aviation and leveraging Palantir Technologies

• Revenue Ready: Generated $60.5M in 2023, unlike pre-revenue competitors

We think the air taxi industry is almost here, says investing legend Cathie Wood. Her Ark Invest has poured millions into similar stocks.

Worried about competition? While others are still on the drawing board, SRFM is already flying passengers today and working toward electrification certification of new technology.

The $75+ billion regional air mobility market is taking shape now. Don't let this opportunity fly by!

BREAKING NEWS
JPMorgan President Daniel Pinto may have just done himself no favors in his race to replace CEO Jamie Dimon. In a move that feels less like a seasoned banking executive steering the ship and more like Captain Joseph Hazelwood driving in his sleep (Google it, you millennials), Pinto’s comments at a financial conference on Tuesday sent JPMorgan shares tumbling 7% in less than two hours. That’s the kind of market reaction that makes analysts choke on their morning oat lattes and gives the Dimon yet another excuse to chuckle from the sidelines and think, “Maybe I’ll stay around a little longer.”

Pinto’s crime? Telling analysts that they were being too optimistic about the bank’s net interest income and expense projections for 2025. And while he said “too optimistic,” the market seemed to hear “wildly delusional.”

WHAT HAPPENED
In a masterclass on how not to keep your stock price buoyant, Pinto decided to let everyone know that analysts were being a little too happy-go-lucky with their JPMorgan projections. Speaking at an industry conference late Tuesday, he dropped the bomb that the forecasted $89.5 billion in NII for next year was, to quote Pinto, “not very reasonable.”

In fact, he flat-out told analysts, “I think that number will be lower,” citing the likelihood that the Federal Reserve will cut interest rates. Unfortunately, for anyone hoping Pinto might throw them a bone with a more specific number, he declined to do so, leaving everyone to panic over what “lower” really means. Spoiler: Wall Street does not handle vagueness very well.

But Pinto didn’t stop there. He also added that third-quarter investment banking fees would rise a whopping 15%, and markets revenue would see a 2% bump. Oh, you thought that was positive? No. Those figures are well below what analysts have baked into their models. To be fair, Pinto was following Goldman Sachs CEO David Solomon’s Monday musings about his own trading revenue falling by 10% this quarter. We can almost picture Pinto seeing Solomon’s remarks and thinking, “Hold my Bloomberg terminal.”

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BREAKING NEWS
Since 1977, Larry Ellison, a prominent American businessman, entrepreneur, and technologist, best known as the cofounder and now CTO and chairman of Oracle, has been making the right moves in the right direction.

We say that because this week, despite fears of the market sinking a bit during a historically slow September slump, Oracle announced their fiscal 2025 Q1 results, proving to software companies around the world that just because you are the top dog does not mean you cannot optimize and refine old and new tricks.

Some of the figures that stand out: total revenue climbed 7% year-over-year to $13.3 billion in USD, or 8% in constant currency, the company's cloud services segment proved to be a solid performer, with revenues surging 21% year-over-year to $5.6 billion in USD, or 22% in constant currency and, if that were not enough, a partnership with a little company called Amazon to further solidify their already established foothold in the business of cloud services and databases.

WHAT HAPPENED
The good times are rolling from Monday, as Oracle's stock hit $160 at the start of Tuesday and dipped slightly to $156 at the time of writing. Moreover, to add even more fire to the wealth gap dumpster fire, Oracle's stock popping added $18 billion to Ellison's net worth, raising his overall net worth from $173.3 billion to $191.2 billion, surpassing those of Facebook co-founder Mark Zuckerberg ($177 billion) and Europe's richest man Bernard Arnault ($172 billion). Ellison trails behind Bezos by $5 billion and Elon a little under $60 billion.

At this moment, one of Ellison's more famous quotes comes to mind: "Being first is more important to me [than earning money]. I have so much money. Whatever money is, it is just a method of keeping score now. I mean, I certainly do not need more money."

Well, whatever method Ellison uses to keep his score at $192 billion, it works, especially in cloud services with cloud and on-premise licenses. Revenues surged 7% YoY to $870 million (8% in constant currency). Zooming out, public cloud services expenditure will hit $805 billion in 2024 and double by 2028. This surge, alongside Ellison's ongoing strategy, continues to be propelled by widespread digital transformation, demand for agile IT infrastructures, the proliferation of remote work paradigms, and the burgeoning appetite for AI and ML capabilities. Enterprises like large telecommunications companies, banking, and other sectors increasingly gravitate towards hybrid and multi-cloud architectures, amalgamating public cloud, private cloud, and on-premise solutions.

So, as we can see, Oracle's financial performance, marked by a 21% YoY growth in cloud services revenue to $5.6 billion, has positioned the company to capitalize on these macro trends that appear and will only continue to grow.

Onwards and upwards, the company's GAAP operating income reached $4.0 billion, while non-GAAP operating income climbed 13% to $5.7 billion, driving non-GAAP operating margins to an impressive 43%. This operational leverage translated into an 18% YoY increase in non-GAAP net income to $4.0 billion, with diluted non-GAAP EPS rising 17% to $1.39. Oracle's cash flow generation remained strong, with TTM operating cash flow of $19.1 billion and free cash flow of $11.3 billion, underlining the company's financial stability and liquidity position. The deferred revenue balance of $11.5 billion signals to the market a healthy pipeline for future revenue recognition, while the discrepancy between GAAP and non-GAAP metrics suggests significant non-cash or non-recurring items impacting reported results.

Oracle's press release said, "As Cloud Services became Oracle's largest business, both our operating income and earnings per share growth accelerated," said Oracle CEO Safra Catz. "Non-GAAP operating income was up 14% in constant currency to $5.7 billion, and non-GAAP EPS was up 18% to $1.39 in Q1. RPO was up 53% from last year to a record $99 billion. That strong contract backlog will increase revenue growth throughout FY25."

In addition to Oracle's more-than-stellar earnings and relentless push into upgrading its cloud services, the partnership between Oracle Database and AWS further allows Oracle to reach a broader customer base by integrating its services with the already widely adopted AWS cloud platform.

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1. Apple Loses EU Court Battle Over $14 Billion Irish Tax Bill

Apple has lost its final appeal in the European Union’s top court, which ruled that the tech giant must repay €13 billion ($14.4 billion) in back taxes to Ireland. The decision bolsters the EU’s efforts to crack down on unfair tax arrangements for large corporations.

2. Google Loses €2.4 Billion Appeal in EU Antitrust Case

Google failed in its appeal to overturn a €2.4 billion ($2.7 billion) antitrust fine from the European Union. The fine, issued in 2017, stems from Google using its dominant position to give its shopping service an unfair advantage over competitors in search results.

3. Big Lots Files for Bankruptcy, Closes Hundreds of Stores

Discount retailer Big Lots has filed for Chapter 11 bankruptcy and announced the closure of over 300 stores across the U.S. The company is also seeking acquisition deals from private equity firms to save it from financial collapse.

4. Southwest Airlines Chairman to Step Down Amid Activist Investor Pressure

Southwest Airlines chairman Gary Kelly will retire next year as the airline faces pressure from activist investor Elliott Management. Six board members will also step down, signaling a major shakeup in response to shareholder demands for better financial performance.

5. Bank of America Raises Minimum Wage to $24 an Hour

Bank of America will increase its minimum wage to $24 per hour in October 2024, with plans to raise it to $25 by 2025. This move is part of the bank’s ongoing efforts to attract and retain talent amid rising labor costs.

6. Nvidia Deemed a Bargain by Goldman Sachs Amid AI Surge

Goldman Sachs analysts argue that Nvidia's recent stock price dip presents a buying opportunity, as the company continues to dominate the AI chip market. The stock is trading at lower multiples, and analysts expect future growth as AI applications expand beyond tech giants.

7.Disney and DirecTV Dispute Leaves Millions Without Key Channels

A standoff between Disney and DirecTV has resulted in millions of viewers losing access to ESPN and ABC as the companies fail to agree on carriage fees. This blackout comes at a critical time for sports fans, with major events being broadcast on the affected channels.

8. Goldman Sachs Says U.S. Stocks Unlikely to Enter Bear Market

Goldman Sachs strategists forecast that U.S. equities are unlikely to drop by 20% or more, despite concerns of a recession. They predict that expected interest rate cuts from the Federal Reserve will support stock prices.

9. JPMorgan Chase Shares Fall as Bank Lowers Earnings Outlook

JPMorgan Chase shares fell nearly 7% after President Daniel Pinto warned that analysts were being overly optimistic in their projections for 2025. The bank expects a modest rise in investment banking fees but is more cautious about future expenses and interest income.

10. Federal Reserve Scales Back Proposed Bank Capital Requirements

The Federal Reserve has announced a scaled-back version of its proposed capital requirements for large banks, reducing the expected impact on the banking industry by half. The new regulations come after significant industry pushback, especially from major banks like JPMorgan.

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Today's insights are courtesy of SURF Air Mobility, they are Los Angeles-based electric aviation and air travel company expanding the category of regional air travel and reinventing flying through the power of electrification.

Learn More Here ➔