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Protocol Index: Amazon’s record-low interest rates

Amazon Prime Air plane

Good morning. This Tuesday, Amazon set a record for corporate borrowing costs, what the threats to delist Chinese firms actually mean, and a robot can do my job now. Want Index in your inbox each morning? Subscribe here.

What Matters Today

  • 2:30 p.m. PDT: Zoom executives will discuss its earnings. Expectations are sky high, with analysts expecting last quarter's revenue to have been up 67% year-on-year, according to Koyfin data. The company is also expected to raise its full-year guidance.

Layoff Watch

  • Stitch Fix said it would lay off around 1,400 employees in California, around 18% of its workforce. It plans to hire 2,000 other people in places with a lower cost of living.
  • IBM has been criticized for a lack of transparency around how many people it's laying off.

Today's News

As of 4:37 a.m. PDT: Nasdaq Futures: 0.44% | Euro 600: 1.55% | Nikkei: 1.19% | Hang Seng: 1.11%

OPPORTUNITIES

THREATS

  • Facebook employees staged a virtual walkout in response to the company's treatment of President Trump's posts.
  • Sony, Google, Airbnb, EA and Cisco postponed events because of the protests.
  • Pacific Networks Corp. and ComNet asked the FCC not to halt their U.S. operations.
  • Smartphone sales were down 20% year-on-year last quarter, according to Gartner. Huawei experienced the steepest decline, with its 27% drop significantly outstripping Apple's 8% fall.
  • Kenya proposed a tax on digital marketplaces, which would target ride-sharing and streaming services.

DEALS

Diving Deeper

Money is cheap for tech companies

Amazon set a record Monday, according to the Financial Times: It issued three-year bonds at a 0.4% interest rate, reportedly the lowest corporate borrowing costs of any company, ever.

  • Its five, seven and 10-year issuances Monday were also the lowest-paying ever, with rates of 0.8%, 1.2%, and 1.5%, respectively. In total, Amazon raised $10 billion in the sale.
  • The numbers are way down from when Amazon last issued bonds in 2017, when its three-year bonds had a coupon of 1.9%.

It reflects a broader trend: Borrowing is now very, very cheap for tech companies. That's largely driven by central bank policies, but it's also because lenders view giant tech companies as being super safe.

  • Though Amazon's new bonds have the lowest coupons ever, existing tech bonds trade in the secondary market at even lower yields.
  • An Apple bond maturing in May 2023 currently yields 0.27%, according to FINRA data, while a December 2023 Microsoft bond yields 0.29%. Alphabet pays a little more, with its February 2024 bond yielding 0.37%.

Some tech companies have to pay more, though it's still not much.

  • Intel's May 2024 bond yields 0.59%, whereas a Qualcomm bond maturing in the same month yields 0.76%.
  • Even the heavily indebted Netflix is doing OK: Its March 2024 bond yields 2.84%. Investors willing to gamble on Uber, meanwhile, can get a 6.42% yield on its November 2023 bond.

It's notable that all these bonds are yielding significantly less than their coupon price: In other words, the cost of borrowing has gone down in recent years.

  • One exception to that? WeWork. In 2018, it issued bonds with a 7.88% coupon. Last week, those bonds yielded 28%.

Overheard

  • "We at Talkspace discontinued our partnership discussions with Facebook today. We will not support a platform that incites violence, racism and lies. #BlackLivesMatter" — Talkspace CEO Oren Frank got support from his investors, including Steve Case.
  • "HBCUs mostly aren't LPs in venture funds … It's compounding the divide in generational wealth." — General Catalyst's Megan Maloney says this is "an easy thing to fix."
  • "If you care about getting more Black, Latinx & Women founders funded, you MUST diversify the VC pool. Throwing more founders at racist VCs doesn't work!" — VC Del Johnson thinks the tech community has been focused on the wrong thing.
  • "We will cancel our internal and external meetings and invite you to do so along with us by taking the day to reflect, give yourself space to process, or take action in ways that feel right for you." — YouTube's Global Head of Music, Lyor Cohen, reportedly joined other executives in encouraging staff to take today off.

Everyone's Thinking About

What will delisting mean for Chinese companies?

On Friday, President Trump said his administration would investigate U.S.-listed Chinese firms "with the goal of protecting American investors." That comes just after the Senate passed a bill that would delist Chinese companies unless the Public Company Accounting Oversight Board (PCAOB) is able to audit them.

  • That's not possible, though: As the Nikkei Asian Review notes, Chinese authorities prevent companies from being audited by U.S. regulators on national security grounds.
  • Concerns about lax governance have escalated after Luckin Coffee admitted its CFO fabricated sales data and Nasdaq announced plans to delist it.
  • And amid broader tensions between the U.S. and China, delisting Chinese stocks is yet another way for Trump to demonstrate power. So far it seems to be working: NetEase and JD.com are reportedly pursuing secondary listings in Hong Kong.

But it's worth wondering what this achieves. For one, it might not hurt the companies forced to delist.

  • There is some evidence that a U.S. cross-listing benefits Chinese stocks because it signals better corporate governance and offers access to U.S. investors who might not want to invest in China. But other evidence suggests a Hong Kong-listing can offer similar rewards.
  • "The question of which exchange" a company is listed on, said Infusive Asset Management's Andrea Ruggeri, "is probably a bit archaic."

As for the Chinese economy, the move might help, not hurt, the country.

  • The country would no longer give listing fees to American banks and exchanges, instead getting to keep that in-house.
  • Harvard Law School's Jesse Fried laid out one possible outcome in the Financial Times. He said if the SEC does halt Chinese stocks from trading, their price will plunge — allowing Chinese owners to buy them "at rock-bottom, while blaming the delisting on the U.S. government." They can then relist the shares for a premium in China, making profit at Americans' expense.

Whatever the outcome, don't expect change anytime soon. The new rules, if passed, would delist a company only if it refuses an audit for three years — and who knows what the world will look like then.

Closing Bell

A robot will write this soon

We all remember OpenAI's terrifyingly good GPT-2, the very, very powerful text-generating AI. Well, now there's GPT-3, an even more powerful text-generating AI. Page 28 of a new research paper shows examples of GPT-3 generated news articles that humans struggled to distinguish from real, journalist-written articles. It was nice knowing you!

Thoughts/feedback/tips? Email me — shakeel@protocol.com — or anonymously contact Protocol. And subscribe to get Index in your inbox each morning. Thanks for reading, see you tomorrow.

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