Granite Bay Capital

Equity Bottom-Up

<h3>Headline Developments</h3>
<p>We’ll start this week’s edition with some much needed positive news!</p>
<p><strong>Eli Lilly (LLY)</strong>&nbsp;jumped 10% during the week after promising results from an Alzheimer's trial.&nbsp; According to the company’s&nbsp;<a href="https://investor.lilly.com/news-releases/news-release-details/lillys-donanemab-slows-clinical-decline-alzheimers-disease" target="_blank" rel="noopener">press release</a>, the drug targets amyloid plaques which, in basic terms, are proteins which build up around nerve cells which are believed to catalyse Alzheimer’s.&nbsp; Eli Lilly’s antibody, called Donanema, cleared plaques in 6-12 months amongst 272 trial patients, slowing the decline in patient’s ability to think by 32% compared to a placebo.&nbsp; What a fantastic development!</p>
<p>We also saw during the week some considerable newsflow from a busy Consumer Electronics Show (CES).&nbsp; Here are some of those highlights:</p>
<p><strong>Samsung Electronics (005930.KS)</strong>&nbsp;had a very busy CES, showing off a range of new robotics innovations in a black-mirror style presentation (which they call a ‘better normal’).&nbsp; One such robot, Bot Handy, can stack the dishwasher, set the table, put away groceries and pour a glass of wine.&nbsp;</p>
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<p><strong>General Motors (GM)</strong>&nbsp;is going all-in on delivery and logistics; attempting to shake up a complex ecosystem&nbsp;<strong>Amazon (AMZN)</strong>&nbsp;is hoping to one day control (n.b. Amazon are investors in the EV delivery van Rivian).&nbsp; GM’s new business will be called BrightDrop, an end-to-end platform, including a line of electric delivery vehicles and pallets.&nbsp; In a trial of the pallets with&nbsp;<strong>FedEx (FDX)</strong>&nbsp;last year, workers saw efficiency increase 25%.</p>
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<p><strong>Plug Power (PLUG)</strong>, a leading developer of hydrogen fuel cell systems, saw their shares almost double this week after announcing a $1.5bn investment from South Korean conglomerate&nbsp;<strong>SK Group (034730.KS)</strong>.&nbsp; As part of the new JV, Plug Power will help build out fueling stations, fuel cell systems and electrolyzers throughout South Korea and Asia.&nbsp; SK’s investment equates to around 10% of Plug’s Pro-forma shares outstanding.</p>
<p><strong>Apple (AAPL)</strong>&nbsp;and<strong>&nbsp;Hyundai (005380.KS)</strong>&nbsp;are reported to be on the cusp of signing a partnership deal on autonomous electric cars by March, with the start of production in 2024, according to Korea IT News.&nbsp; The report follows Hyundai's statement last week that it was in early talks with Apple, sending Hyundai up ~20%.</p>
<p>Meanwhile,&nbsp;<strong>Canoo (GOEV)</strong>&nbsp;stock jumped 20% this week after it was revealed they were in discussions last year about receiving an investment from&nbsp;Apple (AAPL). Instead, Canoo listed via a SPAC in December.&nbsp; They have developed a proprietary modular EV platform to develop various vehicles such as the Multi-Purpose Delivery Vehicle (MPDV) below which would go head-to-head with GM and Rivian.</p>
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<h3>Other Developments</h3>
<p><strong>Walmart (WMT)&nbsp;</strong>is partnering with Ribbit Capital - the VC firm behind RobinHood and Affirm - to launch a Walmart-controlled fintech startup with aims to “deliver tech-driven financial experiences tailored to Walmart's customers and associates.”&nbsp; On the back of this news, Ribbit’s SPAC vehicle, <strong>Ribbit LEAP (LEAP)</strong>, surged 22% during the week; however, it’s uncertain how or if this vehicle will be part of the Walmart collaboration.&nbsp; We believe the venture makes logical sense given Walmart’s success with India’s Flipkart and active partnerships across e-commerce and payments (i.e. PayPal and Shopify).</p>
<p>Continuing a good week for Ribbit, their portfolio company&nbsp;<strong>Affirm (AFRM)</strong>&nbsp;listed, doubling on day one of trading to $97 (from an IPO price of $49).&nbsp; If you look at this from an EV/Active User basis; that’s valuing each Affirm user at ~US$6,000 - well ahead of what the market is attributing to each user of&nbsp;AfterPay (APT)&nbsp;at $2,400/user,&nbsp;&nbsp;Zip (Z1P)&nbsp;at $508/user or even&nbsp;PayPal (PYPL)&nbsp;at $774/user.&nbsp; This seems a bit excessive given that Gross Merchandise Value/Active User is about the same as APT (~US$1,200 p/a per active user).&nbsp; Affirm also pull in ~30% of their revenue from one customer -&nbsp;<strong>Peloton (PTON)</strong>.&nbsp; So, although those active customers (3x less than Afterpay’s 11m) spend about the same each year, Affirm users are less frequent and skewed towards the bigger ticket items - like a US$2k bike.</p>
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<p><strong>Kodiak Robotics (private)</strong>, which develops technology for autonomous trucks, has completed “disengage-free” (non-human controlled) deliveries on a 205-mile stretch of freeway in Texas.&nbsp; Kodiak was founded in 2018 and retrofitted trucks with their autonomous software and hardware.&nbsp; This isn’t the most exciting video, but here’s a short clip of the aforementioned “disengage-free” journey for those interested!</p>
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<p>Last year,&nbsp;<strong>Sony (6758.JP)</strong>&nbsp;hinted at their EV ambitions, but a video released during the week (and shot on their first drone - Sony Airpeak) suggests they are very much in the advanced stage of developing this prototype with an extensive list of partners and collaborators including&nbsp;Magna (MGA),&nbsp;Valeo (FR.PA),&nbsp;Amazon (AMZN),&nbsp;Blackberry (BB),&nbsp;Gentex (GNTX),&nbsp;Nvidia (NVDA)&nbsp;and&nbsp;Qualcomm (QCOM).&nbsp; Absent from this list is a LiDAR partner; however, a glimpse at Sony’s LiDAR patent portfolio (nearing 1k patents) clearly indicates that their in-house capabilities around imagine / sensing technologies gives them a distinct advantage.</p>
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<p>Chinese EV maker&nbsp;<strong>Nio (NIO)</strong>&nbsp;is launching its first sedan - the model&nbsp;<a href="https://www.nio.com/et7" target="_blank" rel="noopener">ET7</a>&nbsp;which will further challenge incumbent and emerging automakers. The launch came as rival&nbsp;<strong>Tesla (TSLA)</strong>&nbsp;started selling its China-made Model Y SUV in the domestic market.&nbsp; As you can see in the below chart, the ET7 (the far-right red dot) is well ahead of competitors, offering a ~620-mile range for an estimated US$80k price tag.&nbsp; What’s unique about the Nio is that customers can elect to purchase the battery outright or via a Battery as a Service (BaaS) model (at US$150/month). The autonomous features will also be available under a subscription model (US$105/month) giving us a glimpse of future AV/EV business models!&nbsp;&nbsp;Nvidia (NVDA)&nbsp;are a core partner on Nio’s EV portfolio.</p>
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<p>Amazon Web Services (owned by AMZN)&nbsp;suspended services to&nbsp;<strong>Parler (private)</strong>, the right-wing-focused social network citing the proliferation of hate speech and the site's role in organizing last week's riot at the US Capitol. Parler is now suing AWS for violating antitrust laws and a breach of contractual obligations.&nbsp; Parler insists that its removal from AWS was politically motivated and designed to "reduce competition in the microblogging services market to the benefit of&nbsp;Twitter (TWTR)."&nbsp; Amazon’s response can be seen&nbsp;<a href="https://www.courtlistener.com/recap/gov.uscourts.wawd.294664/gov.uscourts.wawd.294664.10.0_1.pdf" target="_blank" rel="noopener">here</a>&nbsp;along with examples of Parler content (below) which triggered their (more than justified) ban.</p>
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<p>Southeast Asia’s most valuable company,&nbsp;<strong>Sea Ltd (SE)</strong>, has acquired Indonesia’s Bank BKE. The move advances the company’s ambition to establish itself as a financial technology leader across the region as it has done with e-commerce (Shopee) and mobile gaming (Garena).&nbsp; Sea secured a license to open a digital bank in Singapore in December, along with competitors Grab Holdings Inc. (in a JV with SingTel), Ant Group (owned by&nbsp;Alibaba) and a consortium led by Greenland Financial.&nbsp;</p>
<p><strong>Moderna (MRNA)</strong>&nbsp;expects its COVID-19 vaccine to provide immunity for at least a year. The company is confident its mRNA technology is well suited to handle the new variant of COVID-19, which has emerged in several countries (e.g. UK, South Africa). Moderna expects to deliver between 600 million and 1 billion doses of its vaccine in 2021, projecting vaccine-related sales of $11.7bn. Unfortunately, Australia is not one of the countries ordering the Moderna vaccine opting instead for what appears to be a lower efficacy vaccine from Oxford/AstraZeneca.</p>
<h3>IPOs</h3>
<p><strong>Poshmark (POSH)</strong>&nbsp;surged 150% on its trading debut overnight.&nbsp; The business is a social commerce company where ~70m users interact and buy and sell fashions.&nbsp; Like&nbsp;eBay (EBAY), goods are shipped directly from seller to buyer; however, if items are over $500 they are sent to Poshmark for authentication.&nbsp; Another comparable,&nbsp;StockX (private), is worth keeping a close eye on as they expand from their initial domain of sneakers, into an authenticated social marketplace for streetwear, collectables, watches and handbags.</p>
<p><strong>Intercontinental Exchange (ICE)</strong>,&nbsp;plans to take its cryptocurrency venture&nbsp;<strong>Bakkt</strong>&nbsp;public by merging it with a SPAC&nbsp;(VIH). The deal will further its goals of launching a consumer app for trading and making payments with digital assets (e.g. Bitcoin, loyalty points and rewards points). Bakkt is expected to have a $2.1bn valuation after completing the merger and will raise an additional $532 million from VPC’s funds in a concurrent capital raise. More than 400K people have pre-registered for the app which is expected to roll out in March. Bakkt is forecasting the app to reach 30 million users in 5 years.&nbsp;</p>
<p>Electric vehicle maker&nbsp;<strong>Lucid Motors (private)</strong>&nbsp;is in talks to go public through a merger with a SPAC&nbsp;(CCIV)&nbsp;run by rainmaker Michael Klein. Lucid targets the luxury end of the market - the transaction is touted to be valued at up to $15bn. Its CEO, Peter Rawlinson, was previously Tesla’s chief engineer on the Model S. Lucid’s main model, the&nbsp; Air EV, will retail for US$169K in Q2 2021. Lucid says it will do more than 500 miles on a single charge.</p>
<p><strong>Proterra (private)</strong>, a manufacturer of electric buses and batteries (with over 500 patents), also has plans to go public via a SPAC - ArcLight Clean Transition Corp (ACTC). The deal will generate $648m in cash plus an additional $415m from Daimler Trucks, a division of Daimler (DAI.DE), as well as Franklin Templeton, Fidelity and Blackrock. Proterra has about 500 transit buses deployed with 120 customers in the United States and Canada who collectively logged more than 14 million miles of service. They are also expanding into the commercial vehicle market - such as delivery trucks.</p>
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<h3>M&amp;A | Cap Raise</h3>
<p><strong>Qualcomm (QCOM)</strong>&nbsp;has picked up the two-year-old startup NUVIA (private) for $1.4bn.&nbsp; Nuvia, founded by a number of star Apple chip engineers, designs CPU chips for data centres with optimisation of performance v energy efficiency.&nbsp; Qualcomm will integrate the NUVIA technology across its edge, mobile, laptop and autonomous vehicle solutions.</p>
<p><strong>Visa (V)&nbsp;</strong>has abandoned its $5.3 billion bid to acquire fintech startup&nbsp;<strong>Plaid (private)</strong>. The US Department of Justice said the two companies have agreed to call off their merger. The DOJ moved to block the deal in November 2019, alleging that it would have allowed Visa to eliminate a “competitive threat to its online debit business before Plaid had a chance to succeed.” Visa believed it would prevail in getting the deal across the line; however, the protracted and complex litigation would take too long to resolve.&nbsp;</p>
<p><strong>Snap Inc (SNAP)</strong>&nbsp;is continuing to invest in its mapping and geolocation functionality by acquiring <strong>StreetCred</strong>.&nbsp; Although an M&amp;A, we feel the acquisition is more about acquiring the talent of co-founders Randy Meech and Diana Shkolnikov, respectively the former CEO and Engineering head at Samsung’s open mapping platform.&nbsp; With StreetCred, the founders started gamifying maps and incentivising users to validate points of interest through bitcoin prizes.&nbsp; Snap’s rapidly growing social mapping platform's synergy is obvious and will add considerable IP to the business.</p>
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<p>Have a great week.</p>
<p>Charlie</p>
<p><a href="https://www.linkedin.com/in/charlienave/" target="_blank" rel="noopener">LinkedIn</a>&nbsp;or E-Mail (cnave@granitebaycap.com)</p>
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<p>Granite Bay Capital is an innovation-focused investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity. Any views expressed in this article are those of the author(s) and do not constitute financial advice.</p>

China

NIO Inc. manufactures and sells automobiles. The Company offers electric vehicles and parts, as well as provides battery charging services. NIO serves customers worldwide.

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