fortune--2020-10-29--A harsh winter is coming for the hospitality sector

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Good morning. David Meyer here, filling in for Alan.
I am very lucky to live in a part of Berlin (near the Schöneberg/Wilmersdorf border) that is packed with excellent restaurants. As someone who has worked from home for many years, it is a longstanding pleasure of mine to be able to step out at lunchtime and enjoy one of their affordably priced Mittagsmenü (“midday menu”) offerings.
Indeed, I will make sure to do so again today, right after posting this newsletter, because from Monday all restaurants and cafes in Germany will be closed for at least a month, except for takeout. That’s part of the new lockdown agreed yesterday by Germany’s federal and state administrations, in order to suppress our rapidly ascending COVID case numbers.
Ours is not nearly as harsh a lockdown as that announced yesterday in France—people here won’t be confined to their homes, and shops selling non-essential goods will be able to remain open—but then again our numbers (16,774 new cases yesterday) aren’t as bad as those in France (36,437). Yet.
Berenberg Economics said in a note this morning that the French lockdown could lead to a 3-4% GDP decline in Q4; in Germany, the decline will be more like 1%. In both countries, the hospitality sector will be hit hardest.
“I understand the frustration, indeed the desperation, especially in these areas, very much,” said Chancellor Angela Merkel yesterday. She added that restaurateurs who had come up with hygiene and safety concepts over the spring and summer, to tempt diners back indoors, will need them again soon.
That counts as an optimistic view, given our increasing understanding that the coronavirus is largely spread through aerosols (check out this excellent El Pais explainer on that point.) That means any protracted stay in an unventilated indoor space, with other people, is risky even if patrons are spaced out.
Personally, I’ve been eating exclusively in restaurants’ outdoor spaces for the last couple months. Even if this fresh lockdown only lasts a month, as is tentatively planned, that will be tricky in the Berlin winter.
“Without a clear public health plan like a vaccine or cure to the coronavirus, governments are falling back on lockdowns as the primary way to deal with rising infections,” London Capital Group research chief Jasper Lawler said in a note this morning. And uncertainty over how far those lockdowns will need to go, he warned, “means markets may not have fully baked in worst case scenarios—namely insolvency.”
Most (but not all) of the restaurants near my apartment have managed to hang on so far. I fear some won’t survive the winter, and that’s a scenario I unfortunately expect to see playing out across many sectors and geographies.
***
On a more positive note, Fortune’s 100 Fastest-Growing Companies list is out this morning. On average, companies on the list delivered a 19% return to shareholders over the past few years, while the S&P 500 produced just 11%.
This year’s #1, AppFolio, delivered three-year annual revenue growth of 34% and earnings growth of 161%.
Tech watchers will be excited to see Netflix (at #5 this year) making its tenth appearance on the list. Amazon makes its fourth consecutive appearance, and seventh overall, coming in at #10 this year. Facebook, meanwhile is making its sixth consecutive appearance, but coming in only at #52.
More news below.
David Meyer
@superglaze
david.meyer@fortune.com
TOP NEWS
Huawei chips
Some news that suggests Huawei's overall business may survive U.S. sanctions: the Trump administration is reportedly telling chipmakers that they may be able to sell their wares to the Chinese telecoms giant as long as they can demonstrate the processors won't be used for 5G. In other words, chips for Huawei's handsets, as opposed to its network equipment, may be OK. Financial Times
Boeing cuts
As its revenues plunge, Boeing has announced a further 7,000 layoffs on top of the 19,000 job cuts announced earlier this year. It's not clear that these will be the last cuts, either. The company posted a quarterly loss of $754 million yesterday, thanks to pandemic-struck airlines pausing new plane deliveries (which is when Boeing collects its cash) and cancelling orders. CNN
LVMH and Tiffany
The LVMH/Tiffany takeover drama may finally be over, after the Louis Vuitton owner agreed to buy Tiffany at a reduced price of almost $16 billion. That's around $425 million less than the earlier terms. LVMH had tried to walk away following Tiffany's payment, amid the pandemic and its hit on luxury sales, of dividends and management bonuses—Tiffany sued as a result. The suits have now been set aside. Bloomberg
Tech probes
European competition regulators have been busy in the last day. France's antitrust regulator, which already fined Apple $1.2 billion for anticompetitive practices earlier this year, has received a complaint from advertising companies and publishers who are worried about Apple's upcoming privacy enhancements. Italy's antitrust watchdog has opened an investigation into Google's alleged abuse of its position in online advertising. And this morning, Germany's antitrust authority was reported to have launched an investigation into Apple and Amazon. Reuters
AROUND THE WATER COOLER
Tech CEOs
Facebook's Mark Zuckerberg, Alphabet's Sundar Pichai and Twitter's Jack Dorsey defended their companies against attacks from the Senate Committee on Commerce, Science and Transportation yesterday, over the issue of content moderation on their platforms. Democratic senators laid into them for not removing more disinformation, while Republicans hammered them for allegedly suppressing conservative views. The committee is examining the future of Section 230 of the Communications Act, which protects platform operators from liability for what their users post. Fortune
He's Anonymous
Former Homeland Security Chief of Staff Miles Taylor has outed himself as "Anonymous", the author of a 2018 New York Times op-ed (and a subsequent book) that heralded a resistance within the administration against the actions of an "impetuous, adversarial, petty and ineffective" President Trump. Taylor's endorsing Joe Biden, unsurprisingly. NYT
Getting ready
Will the presidential election result in disaster? It could happen despite our brains' "disastrous tendency to underestimate greatly low-probability and high-impact disruptors," argues risk management consultant Gleb Tsipursky in a piece for Fortune. Tsipursky: "The large majority of organizations were seriously underprepared for the pandemic, for example. If you’re not working all virtually now, prepare if at all possible to go to all-virtual work. If you can’t, get extra security for your office ahead of potential civil strife." Fortune
Best smartwatches
It’s gift-guide time again! Here's Fortune's Aaron Pressman, explaining which of this year's smartwatches are the ones to get, including Apple's Series 6 watch, Fitbit's Versa 3, Samsung's Galaxy Watch3..and an extremely premium offering from Garmin. Fortune
This edition of CEO Daily was edited by David Meyer.


fortune--2020-10-29--Alibaba’s first HR head is about to get $5 billion richer

When Congress is likely to make a deal to send more stimulus checks

Lucy Peng has been dubbed Alibaba Group Holding Ltd.’s most influential woman.
The co-founder of the e-commerce giant rarely speaks in public and is little known outside of China, but over the past two decades she’s played a key role guiding Jack Ma’s empire. Peng, 47, helped set up Alibaba’s human-resources department, was Ant Group Co.’s chief executive officer and is now executive chairwoman of Lazada Group SA, the Southeast Asian e-commerce platform.
The former finance teacher is also emerging as one of the wealthiest people within the wildly successful Alibaba ecosystem and one of the richest women on the planet. Peng holds a 1.7% stake in Ant, the fintech firm that’s set to raise $34.5 billion in a dual listing in Shanghai and Hong Kong that could take its valuation to $320 billion. She’ll be worth about $5 billion, based on the pricing of the initial public offering, according to the Bloomberg Billionaires Index. Ant declined to comment on Peng’s wealth.
“Jack famously considers women a key asset in his success; Lucy is the embodiment of that,” said Duncan Clark, author of “Alibaba: The House That Jack Ma Built” and chairman of investment consulting firm BDA China. “That’s why she’s been deployed on new ventures at critical moments of the company’s development. She’s been very focused on the key behind-the-scenes work, especially on human resources, and as such has earned and retained the trust of Jack.”
Women represent almost 40% of Alibaba Partnership members, the elite group that has the power to determine the management’s annual cash bonuses. Along with Peng, six other female leaders are heading for billionaire status thanks to Ant’s record IPO, with a combined stake value of $14.5 billion. They include Trudy Dai, one of the 18 Alibaba co-founders and president of its business-to-business unit; Judy Tong, the e-commerce giant’s chief people officer; and Ant’s vice president, Yijie Peng.
China has been the main engine for self-made female billionaires in recent years: Among the world’s 500 richest people, two-thirds of the 15 women who created their own fortunes are Chinese entrepreneurs, according to Bloomberg’s wealth index.
Peng met Ma through her husband, Sun Tongyu, when they worked together at China Pages, a Yellow Pages-like online directory Ma set up before Alibaba. She was born in Chongqing in southwestern China, graduated from Zhejiang Gongshang University’s Hangzhou Institute of Commerce with a bachelor’s degree in business administration in 1994 and taught at a finance college for five years before joining Ma’s e-commerce venture, according to Alibaba’s prospectus in 2014.
Peng served as chief people officer for most of her time at the e-commerce giant before taking the role of Alipay’s CEO in 2010 to enhance the app’s payment process and user experience. In about a year after she took over, the payment success rate had increased to 95% from 60%, the company said on its website. The platform, owned by Ant, started in 2004 as an escrow service for buyers and sellers on Ma’s shopping site Taobao.com as it competed with EBay Inc. for market share in China.
“Alibaba treasures talent, teams and culture from day one,” Peng said at a panel discussion at Stanford University in 2012, adding that about 30% of Alibaba leaders’ performance metrics are based on team management. “We set very detailed requirements for culture and values supported by systematic structure, and it is not just hollow words.”
Ant’s Expansion
After Alibaba spun off Ant in 2011, the unit quickly acquired licenses and expanded into wealth management, consumer lending and insurance. With more than 1 billion users globally, the firm’s valuation has already surged eightfold over the past five years.
Now Ant is about to sell shares in the world’s largest IPO, unlocking one of the greatest wealth-creation machines in history. Peng, who owns the biggest individual Ant stake after Ma, and Ma himself aren’t the only ones winning big. At least 17 other people are becoming billionaires from the listing, which has enticed retail and institutional investors alike. The was said to stop taking investor orders for the Hong Kong leg of the IPO a day earlier than planned because it was already heavily subscribed.
Peng handed over Ant’s chairmanship to Eric Jing in 2018 to focus on Lazada, an e-commerce venture that Alibaba bought a stake for $1 billion in 2016 before increasing its investment over the years. Peng served as its CEO for nine months and remains its chairwoman.
At Ant, Peng is again behind the scenes. She left the company’s board in August, and her name appears only seven times in the 674-page prospectus. Still, the behemoth listing and Ant’s rise mark the achievement of her goal from four years ago, when she said an IPO would give the firm an opportunity to tell its story and raise money for acquisitions.
“Perhaps we should be better at letting everyone know what Ant actually does,” the then-executive chair of Ant said in a 2016 interview. “Payments is just the tip of the iceberg. What’s big is under the water.”


fortune--2020-10-29--America Ferrera: Latinas are essential. Pay us.

Nearly 60 years after the Equal Pay Act became law, Latina workers, on average, are still paid only 55¢ on the dollar compared with white men. That’s regardless of industry, age, location, career length, or education level—55¢ on the dollar. Which means Latinas had to work all of 2019 and right through 2020 until today just to earn what white men in the same field earned in 2019 alone.
This pervasive Latina pay gap tells the story that our work, our families, and our lives are valued less. So let’s be clear: Our value and our worth isn’t determined by our employers. Our value comes from the countless contributions we make in society, from our drive and our commitment, our passions and experiences, and the fact that we are human—no more and no less than anyone else. The failure to recognize and fairly compensate our contributions to society does not diminish our value, but it does diminish the resources and opportunities we have to provide for our families and to thrive.
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The irony of this disparity couldn’t be more apparent than it is today. We may be valued less, but Latinas are among the pandemic’s most essential workers. When most Americans were told to stay safe at home, many Latinas didn’t have the luxury of protecting themselves and their families first. They were called to the front lines to protect other Americans; to do the work of caring for sick Americans in hospitals, working the fields to keep Americans fed, or supporting other families through domestic work. Even though the Latinx community makes up less than 20% of the U.S. population, we make up over 40% of workers in both the meatpacking and farming industries.
The Latinx community is essential at all times, but the COVID-19 pandemic has only amplified the struggle for economic security in the Latinx community. And Latinas are still paid only 55¢ on the dollar.
It’s time for a new story.
Latinas are more than the paltry representation and tired stereotypes we see reflected in American culture. We are powerful and essential from fields to frontline hospitals, classrooms to boardrooms. We are contributing across business, technology, entertainment, government, and beyond. We are more than deserving of fair pay for the great and essential value we add to our country’s economy and well-being. It’s high time that others acknowledge that accordingly. Latinas deserve to have our power reflected in the culture and in our paychecks.
America Ferrera is an activist, actor, director, producer, and cofounder of She Se Puede, a digital lifestyle community and media platform that inspires, affirms, and informs Latinas to leverage their power in a way that transforms their lives, families, and community.


fortune--2020-10-29--This startup is using robots and A.I. to design new drugs

Men and woman in white lab coats and purple rubber gloves stand beside metal tables, looking at small glass-enclosed cabinets. Inside, a robotic arm carefully lowers a clutch of what look like small eyedroppers to a specialized tray containing small plastic reservoirs, deploying a careful measure of liquid into each. Sensors and microchips embedded in the tray detect and automatically analyze the resulting chemical reaction, sending a stream of data to nearby computer. The atmosphere is hushed and serious, but I keep expecting the bald visage of Dr. Bunsen Honeydew and his hapless red-haired assistant Beaker—the mad scientist characters from The Muppets—to pop up from behind a lab bench.
Instead, I’m being led through the lab by James Field, who does look every bit the part of the mad scientist, particularly in his lab coat. Field is thin, with a Young Einstein–like whoosh of curly brown hair piled on his head, and, on the day I meet him, is wearing round, tortoiseshell glasses. He is the founder and chief executive of LabGenius, the London startup that owns this high-tech robotic lab, located in a former cookie factory.
The company, which Field founded in 2012 when he was still completing his Ph.D. in synthetic biology at London’s Imperial College, is combining advances in robotic chemistry and artificial intelligence to create new proteins that could be the basis for important new medicines.
Today, LabGenius announced it has received an additional $15 million in venture capital financing led by Atomico, the London-based venture capital firm created by Skype cofounder and billionaire Niklas Zennström, to help it to further grow its business.
Field says the funding will help LabGenius in numerous ways. “It’s more robots, more experiments, more people to run the robots,” he notes, but also to develop more sophisticated automated lab tests to enable the company to make more complex proteins.
The valuation terms of the new financing were not disclosed, but documents filed with U.K. business registry Companies House indicate that new funding valued the company at about $53 million.
Atomico partner Irina Haivas will join LabGenius’s board as part of the investment deal. Previous investors in LabGenius, including Lux Capital, Obvious Ventures, Kindred Capital, and Inovia Capital, are also participating in the latest financing.
Haivas, the Atomico partner, says she sees LabGenius helping to solve a “productivity crisis” in the pharmaceutical industry, with the rate of new medicines being discovered slowing and the expense of each new drug brought to market rising. “The way they work hasn’t changed in more than 10 years,” she says, noting that most drug companies still find new medicines from a human-driven hypothesis that is tested through manual, human-run experiments, often producing data that is difficult to capture and verify. “I don’t see a way to get out of this—without supporting the human with technology and data,” she says.
The vast majority of today’s medicines are made using small molecules. But proteins—which are much larger and more structurally complex substances—are the basis of an emerging class of therapies often referred to in the pharmaceutical industry as “biologics.” These are lab-engineered proteins that can mimic the natural antibodies and enzymes that regulate many functions within the human body. Currently, protein-based therapies make up about 30% of all drugs. They include treatments for many cancers, autoimmune disorders, and rare diseases. Protein-based therapies are often far more targeted, and have fewer harmful side effects, than drugs based on small molecules, but they are considered more difficult and costly to develop.
The problem, as Field explains, is that there are so many possible DNA combinations that create proteins that it is extremely difficult to figure out exactly which combination might yield an effective protein therapy. Using traditional methods, designing a single, useful protein can take a researcher years. LabGenius is using robotic automation, synthetic biology, and machine learning to speed that process up.
LabGenius has set its sights on inflammatory bowel disease as the first disease it wants to target. Field says the area is promising because several drugs for the condition already exist, but they have to be injected into patients because they are not chemically stable enough to be taken orally and then survive the harsh environment of the human digestive tract to reach the bowel. So LabGenius has been working to create proteins that would perform similarly but could be put into a pill. The company has already produced several possible proteins and has shown in its lab that they can survive digestive enzymes and the acidic environment found in the stomach. The next step, he says, is conducting safety trials with animals.
The company uses its robotic lab, which can make and test proteins much faster and more reliably than experiments performed by humans, to create a library of information about the biological properties of proteins it is designing, such as how stable they are or how much they react with certain other substances that are of clinical interest. Then the company uses this library to train a machine-learning model to predict how certain DNA sequences correspond to a protein’s properties. In this way, it can drive the proteins it is designing toward the qualities that may make them useful drugs.
“They are integrating existing equipment with the biological methods and A.I. and their data set to get this flywheel effect,” Haivas says.
The robotic lab and machine-learning process is similar to that used by Zymergen, an Emeryville, Calif., company that is focused on creating genetically modified crops and new kinds of biologically engineered materials for the electronics and consumer care markets. It was valued at $874 million after a funding round in September. Aaron Kimball, Zymergen’s chief technology officer, is an adviser to LabGenius.
It’s also similar to the method used by Recursion Pharma, a Salt Lake City–based company, now valued at $465 million. It uses a high-speed robotic lab to screen the effect of small molecules on cells.
The difference, Field says, is that large libraries of small molecules and their properties already existed for Recursion to use. For proteins, the DNA libraries are not nearly as comprehensive, he says, requiring LabGenius to gradually build up its own. (Chris Gibson, Recursion’s cofounder and chief executive, is an investor in LabGenius too.)
Because of its potential impact in drug discovery, predicting the structure of proteins has also been a focus for artificial intelligence researchers, including teams at both DeepMind, the London-based A.I. company owned by Google parent Alphabet, and Facebook. Two years ago, DeepMind created an algorithm called AlphaFold that used a deep neural network—a kind of machine learning loosely based on how the human brain works—to trounce the competition at a closely watched biennial competition for protein structure prediction. But even then, AlphaFold could only correctly predict a protein’s structure about 55% of the time.
Field says that by learning the correspondence between a DNA sequence and the biological properties of the protein it encodes, LabGenius can skip the difficult step of having to predict the structure of the proteins it is designing. Knowing function, he says, is more important than knowing form. After all, he says, Darwinian evolution doesn’t have any understanding of the structures it is creating—it simply has a functional imperative. “Why argue with nature?” Field says.


fortune--2020-10-29--A carbon neutral future is taking shape in Asia, and Australia needs to catch up

Good morning,
Sorry to say that this will be the final issue of The Loop for the time being. You won’t be unsubscribed while The Loop goes on hiatus; when it’s up and running again, you’ll be among the first to know.
In the meantime, you’ll find you’ve been auto-subscribed to Fortune’s Data Sheet newsletter—a daily email on the tech industry. Should you want to, you’ll be able to unsubscribe when you receive it.
Now, on with The Loop.
Australia’s annual Climate of the Nation report, which surveys 2,000 voters and has been running for 13 years, on Wednesday found that 80% of respondents believe the country is already experiencing the impacts of climate change.
The number of Australians saying their country is experiencing climate change has risen 15 percentage points over the past five years, according to the survey. That’s none too surprising: Australia has endured severe droughts, blazing wildfires and massive coral bleaching in that time.
The same survey found 59% of respondents want to see renewable energy play a bigger role in the country’s post-pandemic recovery, but last month Canberra rolled out a raft of recovery policies that support growth in gas and other fossil fuels.
Prime Minister Scott Morrison has resisted international calls for Australia to commit to a climate change strategy and set a deadline for decarbonizing the economy. The heavily polluting mining industry—producing both ores and coal—is a major contributor to the Australian economy. But, increasingly, Australia’s trade partners are committing to net zero initiatives.
On Monday, Japan Prime Minister Yoshihide Suga pledged the country would become carbon neutral by 2050. The move had been anticipated since last week. But, more surprisingly, South Korea President Moon Jae-in followed suit on Wednesday and committed his country to carbon neutrality by 2050.
There are few details to Moon’s plan, but the President said that coal power will eventually be replaced entirely by renewable energy, which currently only accounts for 5% of the nation’s electricity generation.
The actions of Australia trade partners—South Korea, Japan and China, which pledged to go carbon neutral by 2060 last month—will force Canberra to plan for a less carbon-intensive future whether it wants to or not. The three countries are Australia’s largest markets for exports of thermal coal and their shift to net zero will leave a hole in demand.
Australia’s financial institutions are already responding. The last of the Big Four banks pledged to stop funding thermal coal projects this week, as the potential returns dimmish.
In the words of Prime Minister Suga, as he announced Japan’s plan to become carbon neutral, “Responding to climate change is no longer a constraint on economic growth.” But, as Canberra will learn, not responding soon enough will cost dearly.
More below.
Eamon Barrett
— eamon.barrett@fortune.com
CARBON COPY
Green sheep
Billionaire hedge fund manager Christopher Cohn lambasted other asset managers, such as BlackRock and Vanguard, as “sheep” for not proposing enough shareholder resolutions on climate change themselves. “The asset management industry is a joke in respect to what they are actually doing [around climate change],” he said. “They talk but they don’t actually do anything effective.”
Bob Murray
Bob “King of coal” Murray, the founder of Murray Energy, died at the age of 80 this week. The outspoken climate change denier, who lambasted the Paris Agreement and fought against environmental regulations on coal production, died from complications caused by “black lung disease,” which he was diagnosed with in 2016.
Stay East
China’s environment industry has suggested that aluminum smelters and coke coal makers shouldn’t be included on a list of industries encouraged to migrate into West China, where resources—including renewable energy—are cheaper. The ministry said that the two “high-polluting” industries were already over capacity “across the country.”
Green-red back
Five government ministries in China backed a plan to encourage private investment and foreign capital to back green bonds and fund environmental projects, as China seeks massive financing for its ambition to become carbon neutral by 2060.
IN CASE YOU MISSED IT
How one company is ‘pulling the plug’ on the ‘bathtub’ of climate change by Emma Hinchliffe
When it comes to climate change, says Mark Carney, this financial crisis is different—and maybe better by Katherine Dunn
Lululemon announces expanded size range and sustainable fabrics in new good citizenship push by Phil Wahba
This startup wants to help you prepare for America’s next disaster by Katherine Dunn
The COVID-19 pandemic could fuel a hunger pandemic as food insecurity worsens by Aaron Pressman
How energy companies can combat climate change by Naomi Xu Elegant
CLOSING NUMBER
$4.7 million
That’s how much 15,000 tons of scrap steel potentially harvested from a decommissioned cruise ship could fetch on the market, Bloomberg reports. The pandemic has been a critical blow for the cruise industry, accelerating the rate at which old cruise liners are decommissioned. But it’s not just scrap metal salvaged from the pleasure boats: art work, kitchen fittings, furniture, even toilet seats are all being sold wholesale as the defunct boats are broken apart.


fortune--2020-10-29--After Wednesday’s monster sell-off, global markets remain choppy ahead of a Big Tech earnings bonanz

After Wednesday’s monster sell-off, global markets remain choppy ahead of a Big Tech earnings bonanza

Good morning. Stocks and futures are rebounding modestly after Wednesday’s rout, the worst sell-off in the past four months. But markets remain on edge ahead of a big set of Big Tech earnings calls after the bell today.
Let’s check in on the action.
Markets update
Asia
The major Asia indexes are mostly lower with the Shanghai Composite the best of the bunch, clinging to 0.1% gain in afternoon trading.
are mostly lower with the best of the bunch, clinging to gain in afternoon trading. News flash: China has fallen way behind in fulfilling its part of the bargain for the Phase 1 trade deal struck earlier this year, with its U.S. imports falling to about half ( 53% ) of where they should be under the deal’s parameters.
has fallen way behind in fulfilling its part of the bargain for the deal struck earlier this year, with its U.S. imports falling to about half ( ) of where they should be under the deal’s parameters. Shares in Samsung are down 1.5% in Seoul after the tech giant issued a profit warning on falling chip prices.
Europe
The European bourses opened higher before dipping slightly as double-digit recession concerns grow. The Stoxx Europe 600 was up 0.6% 90 minutes into the trading session.
opened higher before dipping slightly as double-digit recession concerns grow. The was 90 minutes into the trading session. All eyes are on the ECB today. There is increasing speculation that the central bank, facing a wave of lockdowns, will announce a €500 billion boost to its bond-buying program.
today. There is increasing speculation that the central bank, facing a wave of lockdowns, will announce a to its bond-buying program. Tiffany & Co. was one of the few gainers on Wednesday. Its rocky courtship with French luxury giant LVMH is back on again after Tiffany’s board agreed to shave about $425 million off the sale price.
U.S.
U.S. futures point to a solid open. That’s after the three major exchanges all sold off hard on Wednesday, wiping out their gains for the month. Tech stocks were among the biggest losers.
point to a solid open. That’s after the three major exchanges all sold off hard on Wednesday, wiping out their gains for the month. Tech stocks were among the biggest losers. The Dow’s 943-point drop yesterday sent market pros back to the history books. Such a precipitous drop so close to Election Day has happened just twice before—during the Great Depression (1932) and in the throes of the global financial crisis in 2008. If history is any judge, that’s bad news for the incumbent.
yesterday sent market pros back to the history books. Such a precipitous drop so close to Election Day has happened just twice before—during the (1932) and in the throes of the in 2008. If history is any judge, that’s bad news for the incumbent. If you’re a follower of the Presidential Predictor —an oft-cited markets-performance indicator during presidential election cycles—it’s now flashing a clear winner for the White House next week.
—an oft-cited markets-performance indicator during presidential election cycles—it’s now flashing a clear winner for the next week. There’s a lot on the calendar today: GDP numbers, unemployment claims and earnings for Facebook, Apple, Amazon and Alphabet’s Google.
Elsewhere
Gold is flat, but after yesterday’s sell-off it’s trading below $1,880/ounce .
is flat, but after yesterday’s sell-off it’s trading below . A reader sent me a note asking for some crypto love in this section, so here goes: Bitcoin is trading just below $13,200 , about 3% below a multi-year high reached yesterday.
is trading just below , about below a multi-year high reached yesterday. The dollar is up.
is up. Crude is tanking again today. Brent is trading below $39/barrel.
***
Buzzworthy
Correction territory…
“Expectations that COVID-19 would be under control by now have vanished and we see stocks falling by another 10-20% from here. We believe that if the S&P 500 breaks below 3,200 before the election, its next move may be down another 12% to 2,890.” — James McDonald, CEO of Hercules Investments.
…or just a healthy sell-off?
“As I write this, the S&P 500 is down about 8 percent from the all-time high. That is not nothing, but we saw a bigger drop in September and a subsequent recovery. We saw almost as big a drop in June and a subsequent recovery. And, of course, we saw a much bigger drop in March and a much bigger recovery. Current volatility can pass quickly when conditions change.” — Brad McMillan, Chief Investment Officer for Commonwealth Financial Network.
FAA(-M)G Thursday
“FB GOOG AMZN AAPL on Thursday night. Going to be huge and again, the odds are higher than any weakness on any of them will be read as a contagious sell signal. All are priced for some degree of perfection. All need to hit it.” — Hilary Kramer, Chief Investment Officer for Kramer Capital Research.
On Trump stocks vs. Biden stocks
Stocks go up or down. But what about right or left? Morgan Stanley analysts has an inventive way to look at stocks going into the election. (We cover this further in Today’s reads just below.)
J.P. Morgan US Equity Strategy & Global Quantitative Research
A rough winter in Europe
Economists are once again tearing up and rewriting GDP projections as the pandemic worsens. Berenberg Bank released a note this morning showing the economic toll that curfews and lockdown-like measures will exact on Q4 GDP. Bars and restaurants will be among the hardest hit.
***
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's read
Basket of own-ables. For much of the year, Morgan Stanley analysts have been tracking two different stock groupings—one that presumably would thrive under a Biden presidency, and another that would benefit from another four years of Trump. They call them the "Biden basket" and the "Trump basket." Coming into this week, the Biden basket was far outperforming the Trump basket. Fortune's Lee Clifford explains what it all means.
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Market candy
Quiz time
Yesterday's sell-off of German equities was brutal, with the benchmark DAX down more that 4%. Out of the stocks that make up the blue chip DAX 30, only one closed in the green yesterday. And, that lone high-flyer was ...?
A) Bayer
B) Daimler
C) Delivery Hero
D) Adidas
The answer is C, Delivery Hero. The Berlin-based online food-delivery giant, which joined the DAX just a couple of months ago, finished the day 1.25% higher. As Fortune's David Meyer reports, Delivery Hero really delivered for investors last quarter, reporting knockout sales and profits, and improved its guidance. This is no fluke. Delivery Hero shares are up more than 100% in the past year.


fortune--2020-10-29--Finance has usurped tech among the 100 Fastest-Growing Companies

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Founded in 2006, AppFolio is a classic tech-industry success story. The software-as-a-service company started out offering property management products and then moved into legal-practice software. And over the past three years, the Santa Barbara, Calif., company has produced warp-speed growth. Revenue has increased by an average rate of 34%; earnings have rocketed up 161% yearly; and the total return to shareholders has averaged 71%. Those sizzling figures are good enough to place AppFolio at No. 1 on this year’s list of Fortune’s 100 Fastest-Growing Companies.
One might imagine that a ranking of fast-growing companies would be dominated by AppFolio-type businesses—tech startups made good. And, in fact, there are plenty of just such companies on the list this year, many of them from Silicon Valley. A total of 17 companies from the Bay Area made the Top 100. That includes Netflix (No. 5), which is making its 10th total appearance on the list and appears for the third straight year. The Valley’s strong showing helped California lead the way among states with 20 companies.
But this year’s list includes companies from 24 different states plus Washington, D.C., and six countries outside the U.S. (To be eligible, companies must trade on a U.S. stock exchange and report results in U.S. dollars. For the full methodology, click here.) In fact, Netflix is the only Silicon Valley company to make the top 10. One of the top-performing tech companies was Brooklyn-based online marketplace Etsy (No. 8), which led the way with a three-year average return to shareholders of 92%. Paylocity (No. 9), a cloud-based payroll and HR business headquartered in Schaumburg, Ill., grew its earnings per share an average of 137% over the past three years. At No. 14, Alibaba, which is based in Hangzhou, China, and incorporated in the Cayman Islands, is the highest-placed non-U.S. company this year.
Because our methodology evaluates companies over a three-year period, the bulk of the performance results that drove this year’s rankings were accumulated before the pandemic began wreaking chaos on the global economy earlier this year. And coming into 2020, the financial sector was on a hot streak. That’s reflected in the fact that financials led the way this year with 24 companies. One of the top performers was Kinsale Capital Group (No. 7), an insurer based in Richmond, which grew earnings an average of 61% annually over the past three years. The number of industrial companies jumped from 12 on our 2019 list to 21 this year, putting the sector in second place. Technology, meanwhile, dropped from 32 businesses in last year’s rankings down to 20—tech’s lowest total since 2015.
With some $296 billion in revenue over its past four quarters, Amazon is easily the biggest company on this year’s list. And it grew its massive sales by an average of 28% over the past three years. That incredible growth for such a gargantuan company helped the e-commerce and cloud giant make the 100 Fastest-Growing Companies list for a fourth straight year, ranking No. 10.
The longest streak in our rankings, however, belongs to Patrick Industries (No. 94), which made the list for a seventh straight year. Founded in 1959 and headquartered in Elkhart, Ind., Patrick makes products and materials for manufactured housing and recreational vehicles and expanded its sales an average of 25% annually over the past three years. It’s another reminder that robust growth isn’t just a Valley phenomenon.
This story has been updated to correct the city in which AppFolio has its headquarters. It is Santa Barbara, Calif., not Santa Clara.


fortune--2020-10-29--Domino effect: Google antitrust case could spell trouble for other tech giants

For Gabriel Weinberg, CEO of the private search engine DuckDuckGo, Google’s market dominance presents the ultimate frustration: He believes not only that his product is remarkably similar in quality but also that it actually prioritizes the privacy and best interests of its users.
In addition to stifling competition by paying off companies like Apple to make its search engine the default on most devices, Google, Weinberg argues, is ultimately contributing to the nation’s alarming divisiveness with its “filter bubble.” Whereas DuckDuckGo will return the same search results for every user no matter their specific location within the U.S., the results you see from a Google search may vary depending on where exactly you are.
“That’s making the country more polarized,” Weinberg says. “If, say, everyone in certain zip codes are seeing one side of an issue versus another just based on what people have clicked on before in that zip code, it’s creating more and more of a bubble in that zip code. And we think that’s really bad for democracy, generally.”
On this episode of Fortune Brainstorm, a podcast about how technology is changing our lives, Weinberg speaks with Fortune’s Michal Lev-Ram and Brian O’Keefe about the importance of the Department of Justice’s antitrust lawsuit filed against Google and its allegedly unlawful monopolistic practices, as well as why Google’s ownership of over 90% of the search market should be of concern.
Specifically, Weinberg takes issue with the obstacles individuals face to make a non-Google search engine their default. While Google asserts that its competition is “just a click away,” Weinberg argues a user would have to take four to five tedious steps to make DuckDuckGo the default search engine. Provided an easier path to competitors, users may be open to a switch away from the search giant, according to Weinberg.
“Just because they have 90% now doesn’t mean that it has to stay that way,” Weinberg says. “And in particular, we’ve run various studies that show if you give consumers an actual option, [Google’s] market share could drop by 20 percentage points overnight. So, there’s a lot of pent-up demand for alternatives.”
Maurice Stucke, law professor at the University of Tennessee and coauthor of Competition Overdose, also joins the podcast to weigh in on the first major antitrust case in over two decades. With the DOJ taking action against Google, Stucke says he wouldn’t be surprised if other Big Tech companies were to have their day in court next.
“After the House report, it would be really hard for the agencies to justify to continue doing nothing against Facebook, Amazon, and Apple,” Stucke says. “What the report explores is how these four platforms all have the same anticompetitive playbook and how they use this playbook in order to maintain their dominance and extend it in other markets.”
Toward the beginning of the episode, Lev-Ram and O’Keefe bring on Fortune senior writer Aaron Pressman to discuss how Google’s antitrust lawsuit closely mirrors the one brought against Microsoft 22 years ago.
To hear more about both what may be in store for Google and the consequences of its market dominance, listen to the episode above.


fortune--2020-10-29--Delayed iPhone 12 sales could be a drag on Apple’s quarterly report

Investors are expecting Apple to report a solid quarter this week despite the weak state of the global economy. But a few analysts warn that the iPhone maker’s numbers may fall short.
The COVID-19 pandemic shut down many factories earlier in the year, including some supplying parts for iPhones, forcing Apple to delay introducing its new models this year. The new $800 iPhone 12 and $1,000 iPhone 12 Pro didn’t go on sale until mid-October, while the $700 iPhone Mini and $1,100 iPhone 12 Pro Max won’t reach customers for another few weeks.
And that means no sales of the new models will count in the quarter ended Sept. 30, Apple’s fiscal fourth quarter. Most years, new iPhones go on sale in mid-September.
According to the average analyst forecast, Apple will report total revenue of $64.2 billion and net earnings per share of 70¢. That would represent a modest sales gain of less than 1% and a profit decline of 8% per share.
But the results may fall short. “We see the potential for an expectations miss,” Morgan Stanley analyst Katy Huberty noted. She called the average analyst forecast “aggressive,” given that new iPhones typically account for as much as 47% of iPhone sales.
Huberty expects iPhone sales will drop 13% from the previous quarter to $22.9 billion, versus the average analyst estimate of $28.5 billion of phone sales. That’s based in part on what happened in 2011, the last time Apple delayed the release of new models till October, when sales dropped 19% from the prior quarter. She’s also predicting Apple’s revenue will come in at only $60 billion, with profits of 62¢ per share.
How big an impact such a miss may have on Apple’s stock price is unknown, however, since Apple will likely make up any lost sales in the final quarter. “We would be buyers of any dip in share price post earnings in anticipation of upcoming iPhone 12 strength,” Huberty noted.
Apple’s stock closed at $111.20 on Wednesday, up 17% over the past three months and 51% so far in 2020. But it is still down from an all-time high of $137.98, reached in midday trading on Sept. 2.
Other analysts pointed to Apple’s strength during the pandemic so far as an indication that even with the later iPhone 12 sales, the company still should report solid results for the current quarter. In its last quarterly report on July 30, Apple showed surprising strength at the height of COVID-19 closures. Sales rose 11% to $59.7 billion while Wall Street had forecast a slight drop.
“Apple’s work from home and learn from home products (iPads and Macs) should continue to do well despite being in the third quarter of pandemic upgrades,” Piper Sandler analyst Harsh Kumar wrote.
Also bolstering investor sentiment toward Apple are the seemingly big subsidies that U.S. wireless carriers are offering to buyers of the new iPhones. With a new line and a trade-in, Verizon is offering buyers up to $550 off, and AT&T is giving $800 in similar circumstances.
“While we expected promotional activity to be an important mechanism to drive unit sales, given the incremental 5G feature set and the relative age of the iPhone installed base of roughly 19 months, we did not expect promotions to be this aggressive,” UBS analyst David Vogt noted. That activity may keep investors excited about next quarter regardless of what happens in the current quarter, he added. “Investor focus will be on iPhone 12 ‘color’ provided by management on the earnings call, effectively writing off 3Q unit results in our view,” referring to commentary he expects from CEO Tim Cook and CFO Luca Maestri on their call with analysts after the earnings come out.
A longer-term problem weighing on some analysts is the possible loss of revenue to Apple that Google pays to be the default search engine on iOS. Analysts estimate Google pays more than $10 billion a year for the privilege and, since the designation costs Apple nothing, the money flows straight into Apple’s profits. But the Justice Department’s antitrust lawsuit against Google targeted the payments to Apple as possibly anticompetitive for shutting out search rivals like Microsoft’s Bing.
“Given the current DOJ antitrust lawsuit against Google, we think investors have become increasingly focused on the impact of decelerating Google’s distribution partner traffic acquisition cost (TAC) payments to Apple,” Wells Fargo analyst Aaron Rakers noted on Wednesday, using the industry term for the payments. “While Google’s exact payments to Apple are unknown, and it is very difficult to dissect the exact growth contributions within Apple’s total services revenue (AppleCare, iTunes, App Store, etc.), reports have suggested…as much as $10.5 billion over the past trailing-12 months ending June or as much as 20% of Apple’s services revenue.”


fortune--2020-10-30--Trump’s narrowing path to victory runs through two states

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President Trump stands a minuscule chance of being reelected unless he can carry two states where he now trails in both the polls and the odds on political gaming sites: Pennsylvania and Arizona. “To prevail, he’d need to pull off not one but both,” says Paul Krishnamurty, a professional political gambler and election expert for the prominent U.K. betting venue Betfair. Indeed, closing the substantial gap with Joe Biden in either the Keystone or Grand Canyon state poses a big challenge in itself. More than any other factor, it’s the heroics needed to score a twofer that’s holding Trump’s odds for victory as low as one in five.
For this analysis, I’ll use the odds on PredictIt, America’s only political gaming site, hosting around 100,000 bettors. The PredictIt data is a better measure of where the race stands right now than the polls, because gamblers adjust the candidates’ “prices” instantaneously in response to real-time events. When Trump tested positive for COVID, for example, his odds dropped sharply within minutes. Polls typically reflect what voters were thinking around five days earlier. The bettors also have “skin in the game” because they’re not just expressing an opinion, they’re risking their own cash.
Trump has a lock on 125 electoral votes in 20 states where he enjoys wide leads both in the polls and in the political exchanges, including PredictIt. In both Michigan and Wisconsin, prizes Trump claimed in 2016, his PredictIt odds are 29%, and in Minnesota, he’s at 22%. So chances are overwhelming that all three go blue. According to the Cook Political Report, six states qualify as “toss-ups,” Texas, Florida, Georgia, Ohio, North Carolina, and Iowa, as well as Maine’s one-vote 2nd Congressional District. They fall in that basket because all are close in the RealClearPolitics average of polls. Trump leads by 2.6% in Texas and 0.6% in Ohio, and trails 0.5% in Florida, 0.7% in North Carolina, and 1.4% in Iowa, while Georgia is tied.
PredictIt’s gamblers, however, give Trump a comfortable advantage in five of those states. In both Texas and Ohio his odds are a strong 72%, and in Georgia, Florida, and Iowa, he stands between 56% and 58%, making him a moderate favorite in each. The classic toss-ups are Maine-2 and North Carolina. At noon on Oct. 29, Trump rated 51% in the Tar Heel State, and in Maine-2, he led by a hair at 52%. The roller-coaster shifts in North Carolina, a state Trump carried by almost four points in 2016, must be particularly vexing to his strategists. In mid-October, Biden opened a big lead. Then, Trump went on the march, advancing from 45% to 56% by Oct. 27. In the past two weeks, his momentum has stalled as his chances shrank to the current 50-50.
Although Trump is near even-odds for North Carolina and Maine-2, we’ll assign them to his column, since at least without the former, it’s almost impossible to see how he wins. So if the President captures those two true toss-ups and the battlegrounds where he’s well ahead on PredictIt, he’d add 123 votes to his bedrock 125, bringing the total to 248. That leaves him 22 short of the 270 needed to win. (Amy Walter, national editor of the Cook Political Report, also explores Trump’s possible route to victory if he takes all the “toss-ups,” among other scenarios in which he keeps the White House.)
Trump stands a reasonable chance of winning in only two other states––yes, the stars of our story, Pennsylvania and Arizona. Everywhere else, he’s at 30% or less. Pocketing the Keystone State’s 20 votes would leave him two shy of victory, so he needs Arizona’s 11 as well. He’s a moderate long shot in both. As recently as early October, Trump lagged by around 30% to 70% in Pennsylvania. Then, he went on a tear, hitting 45% on Oct. 27 as it seemed that Biden’s call for an end to oil and gas production was putting the President on track to a lead by Election Day. But the bump didn’t last: By Oct. 29, Trump had retreated to around 40%. In Arizona, the President’s looking better at 45%. Once again, he’s staged a strong comeback since languishing at 30% in early October. But after hitting 48% on Oct. 24, his sprint stalled in the homestretch.
Keep in mind that to win, Trump must also hold North Carolina, a state that’s in play big-time. It’s a good bet that what’s dictating Trump’s overall odds is his chance of taking both the Rust and Sunbelt stalwarts that are still within reach. Let’s recall some simple statistics. The chances of tossing a coin and getting heads is of course one in two or 0.5. The odds of flipping two heads in a row is 0.5 on the first multiplied by 0.5 for the second, or 0.25, meaning one in four. On PredictIt, Trump’s odds of taking Pennsylvania are 0.4, and chances in Arizona are 0.45. Hence, his odds of taking both stand at something like 0.4 multiplied by 0.45, or 0.18. That’s roughly one in five.
We need to add a caveat. “It’s hard to price multiple states,” says Krishnamurty. “If Trump wins Pennsylvania, his chances of winning Arizona would be much higher than what’s shown on the betting sites. It would show that the national polls are wrong.” In other words, Trump always had a much better chance of winning in both Pennsylvania and Arizona than the surveys were showing. Still, the one in five we get from handicapping the double-win are the same 0.2 betting odds that Krishnamurty assigns to a Trump win. It’s also the current figure on the forecasting site created by Northwestern University data scientist Thomas Miller. That’s down from one in four on Miller’s platform on Oct. 28.
The most probable reason for Trump’s pullback from Wednesday to Thursday: his flattening momentum in Pennsylvania. Once again, if he can’t win there, capturing Arizona won’t be enough. And the smart bettors know it.


fortune--2020-10-30--Why now was the right time for Bahrain to normalize relations with Israel

I’ve read a lot of analysis by experts and pundits over the past few weeks about why Bahrain chose to normalize relations with Israel. Much of this commentary is well informed, but an equal portion misses the mark.
In many ways, the Sept. 15 White House signing ceremony and the Oct. 19 conclusion in Manama of a Joint Communique on the Establishment of Diplomatic, Peaceful, and Friendly Relations between Bahrain and Israel, as well as a collection of seven memoranda of understanding, are but the culmination of years of focused but patient statecraft.
Over a decade ago, we shut down the Israel Boycott Office, based on legislation passed by our national parliament. Since then, senior Bahraini and Israeli officials have met regularly in international fora.
In 2019, our then–foreign minister told Israeli journalists visiting Bahrain: “Israel is part of the heritage of this whole region, historically…The Jewish people have a place amongst us.” He made this statement, in part, because Jewish, Christian, and Muslim Bahrainis have been living together harmoniously on our island for centuries.
But why take these actions now? Because it is the right thing to do—for Bahrain, for the Palestinians, and for the region.
For too long, the Israeli-Palestinian issue has caused untold suffering for people of the Middle East. Alternating spasms of conflict and peacemaking over the past 70 years have produced a tragic legacy of death, destruction, and disappointment for too many generations of Arabs and Israelis.
The Middle East of today is a very different place than it was for previous peacemakers. Bahrain and its allies face new and unprecedented challenges: a virulent and existential threat of religious extremism, an ascendant Iran that has successfully co-opted governments and citizens across the region, and a rash of civil conflict that has created failed states to our north and south. In order to achieve sustainable peace in our region, cooperation among all parties is required.
A new generation of leaders has come of age in our region. They acknowledge the unprecedented challenges facing us and the need for more assertive and determined action. The peace agreement signed between Israel and Bahrain (known as the Abraham Accords, along with an Israel–United Arab Emirates peace agreement) is but the most visible manifestation of a greater will to take decisive steps in defense of our mutual interests and to shape our national destinies.
And yet, some things have remained constant. Not only do Bahrain and the U.S. share common interests and values, but the region cannot know true peace and prosperity without a strong partnership that unites us. Our agreement with Israel helps advance this strategic imperative, and it represents a continuation of Bahrain’s approach to peacemaking as the only realistic option for the advancement of our two peoples.
In this context, Bahrain has long been at the center of regional and international gatherings that focus on religious freedom, economic development, security, and civilizational dialogue. Events such as the Peace to Prosperity workshop, held in June of last year, underscore Bahrain’s principled commitment to building a durable peace that advances the livelihoods of everyone, including the Palestinian people.
What also has not changed is Bahrain’s commitment to a viable, independent Palestinian state. His Majesty King Hamad bin Isa Al Khalifa made that position clear when, in commenting on the agreement, he told the UN General Assembly on Sept. 24, “We consider this a cornerstone for achieving a just and comprehensive peace leading to the establishment of an independent Palestinian state, with East Jerusalem as its capital.”
Some commentary has speculated about the quid pro quo that persuaded Bahrain to sign onto the deal. Was it weapons, or financial assistance, or security guarantees? Such questions miss the mark. The establishment of relations with Israel gains us a strategic long-term advantage, not short-term tactical rewards.
The time has come for a new approach. Bahrain’s future—like its past—depends on openness, tolerance, and diversity.
We simply cannot afford to close our doors to the free—and peaceful—exchange of people and ideas. Our economy relies heavily on the manufacturing, tourism, and services sectors. The innovation and entrepreneurship that drive private sector productivity and growth require a steady stream of new sources of capital and expertise. Integrating Bahrain more fully into the economies of the broader Middle East is, therefore, a necessity that we expect will pay dividends for our future generations.
In his remarks at the White House Abraham Accords signing ceremony, Bahrain’s foreign minister, Abdullatif Al Zayani, noted that this achievement represents “a moment of hope and opportunity for all the peoples of the Middle East and, in particular, for the millions in our younger generations.” We decided to open new bridges of understanding and cooperation with Israel in order to secure a brighter future for the millions of young people who have never known normalcy.
Leaders must offer their people hope: the conviction that things can change for the better, that they are masters of their own destinies rather than victims of someone else’s actions. We believe that the newly defined relations provide an attractive alternative to the disappointments of the past by offering a realistic vision based on openness and inclusion.
The Middle East yearns for change, and for Bahrain, the time is now.
Abdullah bin Rashid Al Khalifa is the ambassador of the Kingdom of Bahrain to the U.S.


fortune--2020-10-29--Apple says iPhone 12 sales are strong despite delays

Apple reported weaker iPhone sales than Wall Street expected for its most recent quarter, but CEO Tim Cook said demand was strong in recent weeks for new models.
Overall sales at Apple rose 1% to $64.7 billion for the quarter ended September 30, a little better than analysts forecast. But that included weaker-than-expected iPhone sales of just $26.4 billion, down 21% from last year. Booming sales of laptops and iPads for stuck-at-home workers and students made up the difference. Profits of 73 cents per share were 3 cents better than the average analyst forecast.
Apple’s stock price, which has already risen 57% so far this year, lost 5% in after-market trading.
In a call with analysts, Cook and Apple CFO Luca Maestri tried to explain that the iPhone shortfall was only a temporary blip. Because COVID-19 forced some factories in Asia to shut down earlier this year, Apple’s new line of iPhones didn’t go on sale until mid-October, missing the usual mid-September debut.
“We’re very bullish on this cycle,” Cook said, noting that the new iPhone 12 family is the first from Apple with 5G capability and many wireless carriers are making generous trade-in offers. “It is the strongest line up we’ve ever had by far…we are off to a great start.”
The new $800 iPhone 12 and $1,000 iPhone 12 Pro went on sale on October 23. The $700 iPhone 12 Mini and $1,100 iPhone Pro Max will be available for pre-order on November 6, with sales starting on November 13.
“We just started shipping iPhone 12 and iPhone 12 Pro and we’re off to a great start,” CFO Luca Maestri told analysts on the call. “Given the tremendously positive response, we expect iPhone (sales) to grow during the December quarter (compared to a year ago).”
Apple sold $56 billion of iPhones in the holiday quarter last year.
But Apple did not give specific guidance about how much total revenue it might bring in for the holiday quarter. The company used to offer analysts a revenue range but stopped in the middle of this year, citing the complications and unpredictability of the pandemic.
Cook was also asked about the possible impact on Apple from the Google antitrust case filed by the Justice Department last week. The government accused Google of using illegal means to expand its search ad business by paying Apple to be exclusive search provider on the iPhone. The payments constitute 15% to 20% of Apple’s annual profits, according to the lawsuit.
Cook pointed to Apple’s growing revenue from a variety of other services, like Apple Music and iPhone app sales, which in theory could offset some or all of the revenue Google currently provides.
“There’s a lot of room there and potential there,” Cook said. “I have no idea how the DOJ suit will go but it’s a long way from a conclusion.”


fortune--2020-10-29--3 big takeaways from Facebook’s latest earnings

Facebook’s third-quarter earnings revealed that its ad business is alive and well despite a temporary ad boycott by companies hoping to pressure the service to act against hateful posts.
Facebook’s revenue grew 22% year-over-year to $21.5 billion, beating analysts’ expectation of $19.82 billion. The company credited its sales gain to an accelerated online ad shift by customers.
“I don’t think we know exactly which way this will turn … whether this is a one-time shift toward a dramatic increase in commerce happening online versus a continued trend we will see,” said Facebook CEO Mark Zuckerberg. “But certainly, we haven’t seen any decline or return to baseline.”
Facebook also revealed that it lost users in its core money-making markets: the U.S. and Canada. However, worldwide monthly and daily active users rose in the third quarter.
Facebook’s shares briefly dropped more than 1% in after-hours trading at $277 per share.
The earnings come as the company faces increasing scrutiny for the hate speech, misinformation, and violence on Facebook. Just a day earlier, Zuckerberg had testified before a Senate committee about whether a law protecting Internet services from liability for what their users post should be curtailed. Meanwhile, Facebook is also struggling to police voter suppression and political extremism during a heated presidential election.
Here are three things to know about Facebook’s third-quarter earnings.
Ad boycott didn’t hurt Facebook
In July, hundreds of advertisers, including some big brands, joined the Stop Hate for Profit campaign, which called for a temporary ad boycott of Facebook and Instagram. The goal was to pressure the company into doing more to prevent hate speech and discrimination.
But the quarterly results made it clear: Despite the long list of marketers that pulled their ads for the month, the boycott didn’t do much to dent Facebook’s revenue. Sales still jumped 22% year-over-year, just seven percentage points less than the company’s third-quarter year-over-year growth in 2019. Facebook also said it expects its fourth-quarter revenue to grow more quickly than in the third quarter, as holiday advertising picks up.
Beware of regulators
Facebook expects to face a “significant amount of uncertainty” in 2021, including regulation of its business.
It said that regulatory changes have made it uncertain whether it will continue to have access to European users’ data. In July, Europe’s highest court, concerned about U.S. surveillance, ruled against a deal that previously gave U.S. companies privileged access to transatlantic data, making data transfers vulnerable to regulatory scrutiny.
And though Facebook didn’t address the U.S. regulations on Thursday, lawmakers and regulators continue to investigate the company. They’re drilling in on whether Facebook has broken any antitrust laws or whether it should be subjected to additional regulation over what its users post.
Valuable users vanish
Facebook said monthly active users during the quarter grew 12% year-over-year to 2.74 billion on its core Facebook app. But in the U.S. and Canada, the highest revenue sources on a per user basis, it lost 1 million of the 256 million monthly active users it had in the prior quarter.
In the third quarter, the average revenue for each U.S. and Canadian user was $39.63. European users came in second at $12.41, or $26.90 less per user.
Facebook credited the quarter-to-quarter user decline in the U.S. and Canada to soaring growth during the pandemic, which kept many people at home. In the fourth quarter, the company expects the number of daily and monthly active users to be flat or slightly down from the third quarter.


fortune--2020-10-29--Walmart removes guns and ammo from store floors because of potential unrest

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Walmart has temporarily removed all firearms and ammunition displays in its stores because of the potential for social unrest, the company said on Thursday.
The move, first reported by the Wall Street Journal, was prompted by the possibility of people breaking into stores and stealing firearms if unrest breaks out in light of the U.S. election.
It also repeats a tactic deployed by Walmart in June after some stores were damaged in the wake of the killing of unarmed Black man George Floyd by Minneapolis police. This week saw looting in Philadelphia after a Black man holding a knife was shot to death by police.
“We have seen some isolated civil unrest, and as we have done on several occasions over the last few years, we have moved our firearms and ammunition off the sales floor as a precaution for the safety of our associates and customers,” a Walmart spokesman told Fortune.
The company has not said when the merchandise would return to shelves, but customers will still be able to buy these items on request.
Walmart sells guns and ammunition at roughly half of its 4,700 stores to cater to the hunters that have been part of its bread-and-butter clientele since its founding in 1962. But last year, after a shooting at one of its stores in El Paso, Texas, in which 23 people died, Walmart stopped selling ammunition that can be used in semiautomatic rifles and handguns.
Following months of demonstrations across the country that sometimes grew violent, there are growing concerns about the potential for armed conflict as the country heads into next week’s election.
President Trump on Twitter has sought to recruit 50,000-plus volunteer observers to “monitor” voting in certain swing states, something that has caused concern among local police and election officials in parts of the country. Earlier, a Michigan judge struck down a ban on open carry on Election Day at the state’s polls, a decision the state might take to the Michigan Supreme Court.


fortune--2020-10-29--Netflix just raised its subscription prices. Here’s how much more you’ll pay

Netflix on Thursday raised the prices for its standard and premium video subscription services.
The company’s standard subscription service is now $14 monthly instead of $13, and its premium plan is now $18 instead of $16.
Subscribers to Netflix’s standard tiers are able to watch streams on up to two devices at the same time, whereas the premium subscribers are able to watch videos on up to four devices and in ultra high-definition.
Current Netflix subscribers will receive an email and notification via the Netflix app about the price change, which only affects U.S. subscribers.
Netflix last raised the prices in January 2019.
A Netflix spokesperson told Fortune in a statement, “We understand people have more entertainment choices than ever, and we’re committed to delivering an even better experience for our members.”
“We’re updating our prices so that we can continue to offer more variety of TV shows and films—in addition to our great fall lineup,” the spokesperson said. “As always we offer a range of plans so that people can pick a price that works best for their budget.”
The price increase comes after Netflix recently reported slower than expected user growth during its latest quarter. Although the company said that it added 2.2 million paid subscribers, analysts were expecting Netflix to add 3.3 million.
Investors are concerned that increased competition from new challengers like Disney+ and HBO Max will curtail growth.
But the company’s price increase seems to have pleased investors. Netflix shares jumped nearly 4% on Thursday to close at $504.21.


fortune--2020-10-29--If Trump wants to boost American manufacturing, he should keep the borders open

On the campaign trail and in front of White House cameras, President Trump talks frequently about bringing back factory jobs, steel jobs, and coal jobs. It’s a seductive idea. But if America truly wants to rebuild its manufacturing sector, its government should be actively working to outfit its workforce for the factories of the future, not the past.
How can the country’s leaders accomplish that? The first step is to be straight with Americans about what the economic future really holds in store. Meanwhile, U.S. political leaders should be working with educators and industry to close the gaps in Americans’ STEM skills. At the same time, policymakers should be reversing course on the country’s current harmful immigration policies, keeping America’s borders open to talented immigrants with the right training to help industry make the leap.
Here in Ontario, we lost 250,000 factory jobs during the recession of 2008, from a population of just 12 million. Despite some recent automotive factory closures, fresh opportunities are beginning to sprout in the “advanced manufacturing” space. We’ve created 45,000 new jobs in automotive computing, clean vehicles, chemicals, advanced textiles, medical devices, semiconductors and pharmaceuticals.
For President Trump and U.S. industry stakeholders, simply wishing for the old ways to return can’t make it so. North American manufacturing is never going back to being the giant employer it was in its heyday. Decades of globalization and outsourcing have split the sector into two segments—low-skill, low-wage assembly line work, and advanced manufacturing jobs that pay better but require advanced skills.
An industry resurgence is possible but only with inclusive policies and open borders.
Elbow grease and innovation
Advanced manufacturing is now a technology business that relies on a balance between elbow grease and innovation. Seasoned line workers and highly skilled engineers need to work in parallel or together, depending on the sector, to propel manufacturing forward and keep the industry afloat. In North America, many advanced manufacturing jobs require specialized skills and sector expertise—and in many cases, the workers who are qualified enough for these positions come from abroad. Meanwhile, local engineering talent is lacking, and talented hires commonly have to come through customs to reach the lab or factory floor.
Advanced manufacturing is crucial to the global economy. It’s an Industrial Revolution business that now runs on cutting-edge technology. In Canada, we’ve seen positive news: Advanced manufacturing employment numbers have risen significantly since 2010—by 98% in agricultural chemicals, 45% in aerospace, 42% in industrial machinery, 22% in auto parts and 17% in medical equipment. For context, 761,000 people were counted as working in Canada’s advanced manufacturing sector as of February 2020.
Since the beginning of the pandemic, we’ve seen companies of all sizes, from iconic Ford to the youngest startups, pivot toward making personal protective equipment and other COVID-related manufactured goods. There is an evolving culture of collaboration championed by companies like StarFish Medical in Victoria, British Columbia, which brought together their network of manufacturers and suppliers to rapidly design and manufacture a fully featured ICU ventilator in Canada. Precision Biomonitoring of Guelph, Ontario, also set an example with partnerships across the country that enabled a rapid production scale-up of point-of-need tests and accessibility for Indigenous communities in northern Ontario.
Simultaneously, there’s a growing trend toward near-shoring and technology nationalism in both the U.S. and Canada, championing locally made and distributed products. Meanwhile, issues sourcing critical PPE for essential workers and medical professionals on the front lines of COVID-19 response have exposed supply chain and manufacturing talent gaps in a variety of industries, including pharmaceuticals, medical devices, semiconductors, automotive, aerospace, textiles and chemicals, communications and IT hardware manufacturing.
With the right talent stream, even automation can be a job creator. Despite global industry fallout from the 2008 recession, advanced manufacturing’s resurgence over the past decade offers fresh opportunities that have already created thousands of factory jobs in Canada and expanded to new sectors of the economy. While U.S. educational institutions provide world-class engineering and manufacturing opportunities, the barrier to pursuing careers in the field for foreign and local talent can be high due to visa complications or restrictions, tuition, entry requirements, or a combination of all three. That’s why North America needs to prioritize welcoming qualified global talent and making it easier for them to help run automated advanced manufacturing processes and production.
Advanced manufacturing has the potential to power the future. But in order to achieve that vision, production needs to be globally competitive. America needs immediate policy changes to reverse harmful visa restrictions and boost global investment in strengthening supply chains to optimize for innovation. At the same time, there needs to be a concerted effort by U.S. government leaders—preferably in partnership with industry and academia—to address STEM skill gaps.
At the end of the day, the products of the future must be developed in line with innovation. To get there, the U.S. needs an all-hands-on-deck approach to ensuring that advanced manufacturing’s future is borderless and resilient.
Yung Wu is the CEO of MaRS Discovery District, based in Toronto. Jayson Myers is the CEO of Next Generation Manufacturing Canada, based in Hamilton, Ontario.


fortune--2020-10-29--Two tales of innovation from CVS and Pfizer

Good afternoon, readers.
Innovation takes many forms. One form may be, say, transforming the way you think about your purpose in an industry. Another may involve rising to the urgency of the moment with technological advances.
I mention this because two very different kinds of health care companies’ chief executives discussed that exact dichotomy of innovation during Fortune‘s virtual Global Forum this week.
The highlights which come to mind are the stories of CVS Health (a major provider for COVID testing during the pandemic) and drug giant Pfizer (which has one of the leading candidates for a coronavirus vaccine).
CVS CEO Larry Merlo pinpointed the company’s evolution to a specific moment: Its decision to leave a lucrative tobacco business behind to become a true health firm.
“It’s a great story in the evolution of our company. We looked at our strategy at that time in terms of becoming more of a health services company,” said Merlo during an interview at the event. “We had our CVS pharmacies; we had CVS Caremark as a leading pharmacy benefit management company; we were opening our retail clinics branded as MinuteClinic.”
Merlo said that a point came when CVS could no longer justify selling a product which kills millions of people, even if that decision ate into its bottom line to the tune of $2 billion. That crucial decision was perhaps the first domino to fall in the company’s ambitions to become a provider of basic medical services within local communities.
The other firm is Pfizer. While there are a number of prominent drug makers (and some not-so-prominent ones) attempting to make a COVID vaccine, Pfizer realized early on that its own experimental therapy required supplementary materials.
You see, Pfizer’s candidate, should it be authorized or approved by the FDA, would require intense refrigeration at temperatures as low as negative 112 degrees Fahrenheit. So it figured out a way to make it happen: Design a high-tech carrying case that can freeze it at such temperatures while monitoring the location and temperature of every dose.
“The logistics of medicines and distribution of medicines are always very complicated, because there are always storage conditions,” said Pfizer CEO Albert Bourla during the Fortune Global Forum. “And we knew that we had to move very fast. So we wanted to make sure that we can distribute by plane, we can distribute by any type of vehicle without needing refrigeration individually.”
Read on for the day’s news, and see you next week.
Sy Mukherjee
sayak.mukherjee@fortune.com
@the_sy_guy
DIGITAL HEALTH
Telehealth's explosion continues unabated. Telemedicine is seeing its moment in the sun during the coronavirus pandemic. Teladoc Health, one of the most prominent companies in the sector, is yet another example of the trend. The company announced in its third quarter earnings report that revenues swelled nearly 80% for the first nine months of 2020 compared with the same time period last year. A lot of that had to do with membership gains and a massive 163% spike in total telemedicine visits. Net losses, however, dragged it down a bit. But that's a metric which may improve once its $18.5 billion merger with digital health firm Livongo closes. More on that here.
INDICATIONS
The state of play on COVID vaccines. There are literally hundreds of COVID vaccines in development around the world. But four major ones stick out in the U.S. These candidates from Pfizer, Johnson & Johnson, Moderna, and AstraZeneca are at various stages of the regulatory process, and the companies' executives have expressed various levels of optimism for when their product may reach the market. For instance, Pfizer hopes to file for an FDA emergency authorization by the end of November should its efficacy data support such an application. More on the details here. (Fortune)
THE BIG PICTURE
How much can we rely on COVID antibodies? The staying power of coronavirus antibodies remains one of the biggest mysteries surrounding this pathogen. A number of studies have suggested antibodies disappear within anywhere from two to six months. But that's not the end of the story. What exactly does that mean for, say, the possibility of recovering from COVID-19 only to become reinfected? Is it possible you don't need a high antibody count to not remain sick? These are questions which will take years to answer, but in the meantime experts seem to agree that taking precautions like wearing a mask, washing your hands, and keeping your distance will still be critical. (Fortune)
Health care on the ballot. Believe it or not, the 2020 election is finally coming to a close within the next week. All (or most) eyes will understandably be on the top of the ticket. But there are also plenty of health care-related ballot measures in states that are worth tracking. California's Proposition 23 will likely be the most closely-watched, as it challenges the dialysis industry's giants such as Fresenius and DaVita by imposing more regulations on dialysis clinics. But there are also a number of initiatives in states like Colorado, Oklahoma, and Maine addressing everything from Medicaid expansion to vaccine exemptions. Plenty more on this after Election Day.
REQUIRED READING
Inside American dentistry's identity crisis, by Kat Eschner
Facebook's fight against outside oversight, by Danielle Abril
When Congress is likely to make a deal to send more stimulus checks, by Anne Sraders and Lance Lambert


fortune--2020-10-29--Shares in Google’s parent soar 6% on ad sales rebound

Alphabet returned to growth in the third quarter after a decline in the previous period, fueled by digital advertising that has rebounded along with the American economy. The shares rose about 6% in extended trading in New York.
The Google parent reported third-quarter revenue, minus the cost of distribution deals for its search engine, rose 15% to $38 billion. While that was slower than the pace of growth a year ago, it marked a turnaround from the previous quarter’s drop. Analysts had estimated sales of $35.4 billion in the quarter. YouTube, the fastest-growing part of Google’s ad business, brought in $5 billion, 32% more than last year.
About 90% of Google’s revenue stems from advertising, much of it linked to search results. That business ground to a halt in the second quarter, as the pandemic decimated its biggest clients, travel and tourism companies. But as lockdowns wore on and people adjusted to spending more time at home, e-commerce has boomed and people have spent more time watching YouTube, helping the search giant business get going again. The U.S. economy also bounced back, notching record growth in the third quarter.
Evan as Alphabet stages a financial comeback, the company is bracing for its most serious regulatory challenge yet: an antitrust lawsuit by the U.S. Department of Justice, which accuses the company of abusing its dominant position in online search. Google has issued a lengthy rebuttal to the suit, which it calls “deeply flawed.” One of the government’s arguments takes aim at Google’s agreements with Apple to prioritize its search engine in the iPhone maker’s products. Google pays an estimated $8 billion to $12 billion for the privilege, and as a result the DOJ said nearly half of Google’s search traffic in 2019 came from Apple products.
Google has packed the top of search results with advertising in recent years, increasing its ability to profit from users’ hunts for information.
The second quarter was Google’s first without revenue growth in its two-decade history. The decline was even more concerning to investors because digital advertising rival Facebook Inc. kept growing during the period. Alphabet Chief Financial Officer Ruth Porat assured investors at the time that things were beginning to look up at the beginning of the third quarter. Recently Snap Inc. and Pinterest Inc., which also rely on advertising, reported strong results.
Cloud revenue was up 45% to $3.4 billion. Analysts expected to see gains in that category due to higher demand for collaboration software with more people working from home. A drop in capital spending helped push Google’s margins and profit up too. Google reported earnings per share of $16.40, beating analysts’ estimates for $11.42.


fortune--2020-10-29--Trump’s diversity training ban faces lawsuit from NAACP

Three civil rights groups filed a lawsuit Thursday challenging President Donald Trump’s executive order that prohibits federal agencies, contractors and grant recipients from offering certain diversity training that the president deems “anti-American.”
The NAACP Legal Defense Fund filed the complaint in federal court in Washington, D.C., along with the National Urban League and the National Fair Housing Alliance. The lawsuit argued that Trump’s order violates free speech rights and strangles workplace attempts to address systemic race and sex discrimination.
The National Urban League and the National Fair Housing Alliance both have federal contracts and plan to apply for future ones.
The executive order “unconstitutionally forces Plaintiffs to choose between censoring speech on these important issues or forfeiting any opportunity to enter into a federal contract,” the groups argued in the complaint.
Trump’s executive order, signed last month, called out workplace trainings that explore deep-seated racism and privilege that the administration says could make white workers feel “discomfort” or guilt. The president ordered the Labor Department to set up a hotline to investigate complaints about training sessions that Trump has called “anti-American” and “blame-focused.”
Trump has said he is targeting training based on “critical race theory,” the idea that racism has permeated American history and institutions. At the first presidential debate, Trump said such training is “teaching people to hate our country.”
The directive uses a 55-year-old presidential order spurred by the Civil Rights Movement that sought to ban discriminatory practices at companies that contract with the federal government. Critics say Trump’s order twists President Lyndon B. Johnson’s 1965 initiative into vehicle for white grievances.
“The executive order smacks of a totalitarian endorsement of white supremacy,” Marc Morial, president and CEO of the National Urban League said at a virtual press conference.
Morial called the order a “direct attack on our mission.” According to the lawsuit, the National Urban League has a federal contract that includes developing diversity and inclusion training programs for the Department of Labor’s apprenticeship programs.
The Department of Labor says the order does not ban “unconscious bias” training that discusses “pre-conceptions, opinions, or stereotypes” that people might have about others. But it prohibits training that that implies anyone is racist or sexist “by virtue of his or her race, sex, and/or national origin.”
The lawsuit, however, said the wording of the order is overly broad and is already having a chilling effect on diversity training. Some organizations have asked that words including “systemic racism” and “white privilege” be banned from training, the complaint said. It also cited the University of Iowa’s decision to suspend its diversity efforts for fear of losing government funding.
Michelle Lee, co-founder and CEO of Awaken, which provides diversity and inclusion workshops, said one of her clients — a private company with a government contract — reached out shortly after the order was issued to ask if she could omit “white privilege” from a speech she planned to give to its employees. Lee said she pushed back, saying she did not believe that language would violate the order, and the company relented.
“I did give the speech and I was extra spicy. Not only did talk about white privilege but I extended that further to talk about white supremacy culture,” Lee said.
She said another client, a non-profit that relies on government grants, has asked if Awaken planned to reformulate its training. But Lee said no professional diversity trainer would imply that any group has unconscious bias without proper context.
“Of course we are not going to stand up and say, ‘you people are inherently racist,'” Lee said.
Within the government, the Justice Department has suspended all diversity and inclusion training. The government has also canceled training programs at the State Department, Environmental Protection Agency and the Department of Veteran Affairs.
The National Fair Housing Association, which currently has a contract with Department of Housing and Urban Development, said in the lawsuit that it routinely conducts internal training and discussions to address “systemic racism, unconscious bias, and racial inequities.” Those include recent “informal conversation” with employees concerning “perceptions of white people and other demographic groups in connection with the killing of George Floyd.”
The Labor Department is also using the 1965 presidential order to target companies, including Microsoft and Wells Fargo, over public commitments to expand or bolster Black and Hispanic representation in leadership roles. The government opened inquiries into both companies, warning them against using “discriminatory practices” to meet their goals.


fortune--2020-10-29--Netflix is testing an audio-only feature that’s similar to podcasts

Netflix is testing a new audio-only feature for streaming video that would turn its shows into podcasts.
A version of Netflix’s Android app includes software code that suggests the company is testing letting users listen to videos instead of watch them, according to an analysis by tech publication XDA Developers.
The publication, which is geared toward Android developers, reviewed the underlying code of a recent update of Netflix’s Android app that includes the language, “The video is off, but you can continue listening to your show while you are busy doing other things.”
As the article notes, the language could refer to a new feature that would let people listen to streamed shows via their smartphones while they do other things that prevent them from actually watching. The feature could also let users use an audio-only mode in order to save battery power or mobile data.
Still, the article notes that these are only test features that “may be pulled at any time by the developers in a future build.” The features are also not live as they are merely potential additions to a “future release.”
If Netflix were to debut the new audio-only feature, it could give users an alternative to switching to a competing media service to listen to podcasts. Earlier in October, Netflix reported slower user growth than what analysts had expected.
A Netflix spokesperson said in a statement, “We’re always looking for new ways to improve the Netflix mobile experience for our members.
“We run tests in different countries and for different periods of time—and only make them broadly available if people find them useful,” the spokesperson said.
Update: Oct. 29 at 3:10 p.m. ET with comments from Netflix.


fortune--2020-10-29--New Jersey set to become biggest East Coast state to legalize pot

New Jersey is poised to become the biggest state on the East Coast to legalize recreational marijuana.
After struggling to enact legislation to join the growing number of states that have fully lifted prohibition of the drug, lawmakers placed it directly on the Nov. 3 ballot. And it has widespread support: a recent poll found that two-thirds of likely voters are in favor of it.
The step would be a major boost to the marijuana business by making New Jersey the fourth most-populous state to legalize recreational use. It would also promise more than $100 million of new tax revenue to New Jersey, which was hit hard by the coronavirus pandemic and is planning to borrow billions to cover the shortfalls left in the government’s budget.
“It will be an economic engine for New Jersey when it gets going,” said state Senator Nicholas Scutari, a Democrat, who plans to file enabling legislation as soon as next week, if voters approve the measure. “The greater impact on society is going to be the job opportunities, people getting employed and paying their employment tax, people not getting arrested. It’ll be a whole new industry just like we have liquor stores, and we have breweries and we have beverage warehousing.”
New Jersey would join 11 states that have already fully legalized cannabis, including Maine and Massachusetts. Similar referendums are on Nov. 3 ballots in Arizona, Montana and South Dakota while Mississippi voters will decide whether to allow medical marijuana use.
If legalized, it is expected to generate $1.9 billion of sales in New Jersey, possibly generating some $126 million of sales-tax revenue, according to the state’s Office of Legislative Services. Medical marijuana has been legal in New Jersey since 2010.
The new revenue would help a state that plans to issue as much as $4.5 billion of debt in the current budget year to cover budget shortfalls as the coronavirus outbreak weakens revenue collections. New Jersey has a lower bond rating than any other state except Illinois and is at risk of being downgraded to triple-B levels, the lowest range of investment grades.
“If we didn’t need the money before, we certainly need it post-pandemic with all the austerity measures that are being talked about at the state level due to certain budget issues because of the pandemic,” said Michael McQueeny, a lawyer who specializes in the cannabis industry at FoleyHoag LLP.
If New Jersey’s pot referendum passes, enabling legislation could be enacted as soon as late November, according to Scutari, the lawmaker. The legislation would impose the state’s 6.6% sales tax on cannabis sales and allow local governments to implement an added levy of up to 2%, he said.
The enabling legislation will also aim to foster small-business growth in the industry by offering micro-licenses for entrepreneurs and focusing on affected communities that may already have black-market industries, Scutari said.
To help bring marijuana sales out from the underground market and make legal pot sales competitive, the state should avoid high taxes on the product, said Scott Rudder, a former state legislator and president of the New Jersey CannaBusiness Association.
“People are selling it on the street at a much lower rate,” Rudder said. “We want to make sure that we’re getting to the point where our prices are much more attractive to people who want to go to a legal market, who want to buy something that they know they can trust.”
State Senator Ron Rice, a Democrat from Newark, has criticized the state’s drive to legalize while it’s not moved so fast on a decriminalization bill he sponsored. In a Sept. 1 letter to Senate President Steve Sweeney, a fellow Democrat, Rice requested that the bill have a hearing in the Senate Judiciary Committee, where it has sat since June. The bill as of Thursday had no action scheduled.
The state’s Republican senators and assembly members largely oppose legalization, and the party’s county chairpersons in September passed a resolution to oppose the ballot question.
Since Governor Phil Murphy took office in 2018, he and other state lawmakers have tried, and failed, to legalize recreational use through the legislature. Governor Andrew Cuomo has faced similar difficulty in neighboring New York.
A Stockton University poll of likely New Jersey voters conducted from Oct. 7 through Oct. 13 showed that 66% supported the referendum while 23% oppose and another 10% were not sure or undecided.


fortune--2020-10-29--‘Emotional’ purchases and splurges on fun handbags mitigate sales declines at Kate Spade and Coach

During these dark times, consumers are indulging in a bit of fun, giving brands like Coach and Kate Spade a much needed lift.
At Coach, owned by fashion conglomerate Tapestry, the average price customers paid for handbags in the quarter ended Aug. 28 rose 25%, helping its parent company turn a nice profit despite overall sales declines.
The increase had a lot to do with having less inventory on hand and, by extension, less discounting to clear out unsold merchandise. Indeed, Tapestry executives said they had reduced promotions significantly during the quarter. But it also indicates that shoppers are turning to handbags as a retail pick-me-up.
“Consumers really consider this category a treat for them to bring a bit of joy to their life,” Tapestry CEO Joanne Crevoiserat, the interim chief executive who got the top job earlier this week, tells Fortune. Those words echoed the sentiments of Saks Fifth Avenue president Marc Metrick, who this week compared luxury spending to “comfort food.”
One theory put forth on Twitter by retail analyst Stacey Widlitz, president of SW Retail Advisors, is that with all the extra things people have to carry with them in this COVID era, such as hand sanitizers, a spare mask, and sanitary wipes, “crossbody bags no longer cut it.” A shifting preference for smaller bags in the years before the pandemic had hurt the company because of the lower prices they commanded.
But Todd Kahn, interim CEO of the Coach brand, Tapestry’s largest by far, says it has more to do with Coach’s products simply striking a chord with consumers. “Nothing would make me happier than to have big bags be the blowout opportunity of the season. [But] the results you saw in this quarter were really driven by emotional bags.”
Overall, Coach sales fell 9%, a big improvement over the 53% drop in the previous quarter and helped by more North American stores being open, a jump in online sales, and solid sales in China.
At Kate Spade, a brand Tapestry has struggled for years to turn around, sales were down 21%. But it would have been worse without one product that was a hit: a $348 crossbody pineapple handbag, an item that tapped into consumers’ desire for the fun and whimsy referenced by Crevoiserat.
Tapestry’s third brand, Stuart Weitzman, continued to struggle, with sales down 35% as consumers stayed away from shoes for the office or for formal occasions.
Despite those declines, Tapestry’s shares rose on Thursday and are now up 47% since the pandemic hit in March. The reason: The acceleration program that Crevoiserat helped develop since joining Tapestry as finance chief in 2019 is beginning to pay off.
The pandemic forced Tapestry to move more quickly to strengthen its e-commerce business, which has more than doubled in each of the past two quarters over the year-earlier periods. The company has eliminated some fat in its supply chain and is using more data in deciding what to make and where to sell it.
“We had recognized that our business had been underperforming, particularly in our acquired brands,” Crevoiserat recalls. “All of those things took on a higher sense of urgency as we moved through COVID.”
As for the gradually shrinking sales declines at Coach and Kate Spade, Crevoiserat thinks the environment will continue to give the brands an assist in their bread-and-butter business.
“We see strong consumer intent-to-purchase going forward. Our business bears that out. Consumers are still interested in buying handbags,” she says.