fortune--2020-08-18--The champ’s big comeback: Why beaten-down value stocks are poised to thrive

Value beats growth. That’s arguably the theme that, more than any other, has proved the long-term winner in equity investing. Picking the cheap and unloved over high-fliers is the strategy advocated by the most influential students of markets: Think Graham and Dodd, and a pantheon of money managers from Warren Buffett to Daniel Loeb. And it’s worked brilliantly over the long haul: A family that for the past six decades bought nothing but value stocks is now four times richer than the clan that bet exclusively on growth.
But in recent years, the traditional loser has been famously thrashing the longstanding champ. Value has been experiencing a drought so deep and extended that many on Wall Street believe we’ve entered a new paradigm. Tech superstars have been far outperforming inexpensive names in such sectors as banking and manufacturing for years. And the Great Lockdown prompted by COVID-19 has lengthened growth’s lead over value to an all-time record. The likes of Apple and Amazon are thriving as consumers buy digital gadgets for working at home and flock to online shopping, while value stalwarts in such sectors as airlines, retail, and hotels have taken their worst beating in decades.
Fans of the sprinters believe they’ll keep lapping the field. The view gaining momentum: Even as the tech players mushroom into giants, they can keep growing incredibly fast, because they harbor such rich options for branching into groundbreaking fields and products.
It’s hardly surprising that growth has gained cachet as the better place to be. Over the past 13 years, the glamour category has been handily beating unlovely value, the longest period in history for which what’s supposed to be the market’s bargain basement has lagged. But despite the long losing streak, the widespread talk of value’s demise is misguided and especially wrongheaded at this moment in the markets.
“The conditions have never been more right for value to far outperform growth as the economy recovers over the next few years,” says Vitali Kalesnik, a Ph.D. economist from the University of California, Los Angeles, who serves as director of research for Europe at Research Affiliates, a firm that designs investment strategies for $148 billion in mutual funds and ETFs.
The reason value looks so promising just as its record versus growth is hitting all-time lows is basic. Historically, the cheaper value becomes in relation to growth and hence the overall market, the more it outperforms going forward. The bigger the gulf between the two, the stronger the springboard for value.
In the COVID-19 economy, that gap has never been wider. But it’s just one of three drivers that are now joining forces. The second: Value traditionally wins big coming out of deep recessions, and the U.S. is living through the worst downturn since the Great Depression.
Here’s the third factor: Value wins biggest when a reeling economy explodes a stock market bubble. That giant pop could be looming. Led by what we’ll call the FANMAGs (Facebook, Apple, Netflix, Microsoft, Amazon, and Google parent Alphabet), growth stocks are now at their most exuberantly priced since the tech craze’s summit in 2000.
Lessons from downturns past
How value’s steep descent and growth’s ongoing explosion portend a stunning reversal of fortunes is the subject of an excellent new article, “Value in Recessions and Recoveries,” by Kalesnik and coauthor Ari Polychronopoulos. They examined the performance of value compared to the overall market during six previous downturns and the rebounds that followed. I talked with Kalesnik to learn what history is likely to tell us about the road back from the COVID-19 cataclysm.
The authors note that one of two forces, or in rare cases both, drove all six recessions they studied: a shock to fundamentals, or the collapse of a bubble in stocks. In four episodes, the cause was a basic economic tremor: the fiscal tightening during the Vietnam War from 1968 to 1970; the Iran oil crisis of 1980 to 1982; the Fed-engineered interest rate increases in mid-to-late 1990; and the global financial crisis from late 2007 to early 2009. The tech crash of 2000 was the only instance when a crash in stocks was the principal dynamic. Only in one case did an economic tremor coincide with market meltdown, when the OPEC oil crisis of 1972 to 1974 caused a sharp pullback in the “Nifty Fifty” stocks, including IBM, Polaroid, and Revlon, the FANMAGs of their day.
For each period, the authors establish a “value” bucket consisting of the 30% of S&P 500 stocks with the lowest price-to-book-value ratios, meaning that their market caps are the most depressed compared to their net worth, the excess of their assets over their liabilities. For companies to fall in this lowest tier means that investors are pessimistic about their future sales growth and profitability. The low-price-to-book crowd are the market’s dogs. They’re the opposite of the shooting stars that are awarded huge valuations compared to their net worth or earnings, meaning investors are counting on epic performance in the years ahead that far exceeds today’s sales and profits.
Although only one recession saw the bona fide busting of a frenzy, all six included bear markets. In general, value stocks fell less than the overall S&P 500 during the big selloffs. On average, the lowest price-to-book contingent fell 23.8%, while the entire 500 dropped over eight percentage points more, by 32.2%.
Where value really shines is in recoveries. Over the average two-year period following the market bottom, value jumped 85.6%, trouncing the S&P’s rise of 61.4%. Value also beats the averages over the entire span of from the start of the down market to a full economic recovery. Value notched a full-cycle return of 38.5%, beating the 500 as a whole by more than five to one.
Given today’s conditions, it’s especially important to study what happened when the S&P 500 started the cycle radically overpriced. On those two previous occasions, value beat the index by the biggest margin. It outperformed by 47% during the OPEC crisis that included the Nifty Fifty’s fall from the heights, and in the tech bubble of 2000—the pure-play case of collapsing stocks pounding the economy—value gained 62.2% from the start of the bear market in 2000 to the time the economy staged a full comeback in the fall of 2004. Over that period, the S&P dropped by 20.3%, meaning that the players that started out with the cheapest stocks bested the field by a stupendous 82.5%.
“We’re getting into a bubble period”
Kalesnik warns that today’s scenario is reminiscent of the heady days before the tech disaster that struck two decades ago. He also cautions against buying into the kinds of “this time it’s different” theories that crashed with the dotcoms. He points out that what has propelled most of the market’s gigantic rise over the past few years is a narrow group of tech darlings encompassing the FANMAGs as well as other fast-growing names such as Tesla and PayPal. Those big six FANMAGs have seen their valuations rocket from $526 billion and 4% of the S&P 500 total valuation at the start of 2007, to $7.1 trillion and 24% today. In the absence of their huge contribution, the market’s overall return since then would be 30% lower.
“We’re getting into a bubble period,” says Kalesnik. “You have one-fourth of the total market cap in a few companies that overall have extremely high multiples of price to earnings and book value. They’re priced on the hopes they can grow at the same rate as giants as they did as tiny companies infinitely in the future.” He brands that much concentration in extremely expensive stocks as “dangerous.”
Hence, those richly priced FANMAGs, along with other rockets such as Tesla, are highly vulnerable to a steep fall. That prospect raises the odds that value will outperform growth by an even bigger margin than in most recoveries. Value should also benefit from the tightening of that yawning, steepest-ever discount to growth.
Over the past 57 years, the price-to-book for growth stocks has averaged 4.7 times that for value. By the end of January, in a raging bull market, that difference had jumped to nine to one. Then came the big selloff that sank the S&P by around 35% in March. Remarkably, value got hit even harder than growth, in part because tech stocks held up. And for good reason: Online sales and tech equipment and services, for everything from video games to virtual meetings, are prospering in the Great Lockdown. As a result, by the end of March, the growth-to-value price-book ratio hit 10.3. Then the market rebounded, and once again, growth beat value. Such industries as energy, airlines, and financials have recovered a bit but remain far below their levels of early this year, while all six of the FANMAGs hit all-time highs during the S&P’s resurgence to record levels.
So value is dirt cheap compared to growth. But is it really a deal, or just what looks like a buy when stacked against a cohort dominated by bubbling tech? “Essentially, growth is at one of its most expensive levels in history while value is at one of its cheapest levels in history,” says Kalesnik. Right now, value’s price-to-book ratio stands at around .58. That’s about 70% of its average over the past 60 years. As recently as 2014 and 2017, it was twice this expensive.
This measure is especially meaningful. Just when value looks like it has nothing going, it’s not just the best buy in an overheated big-cap market—it’s a good buy, period. Fear is what breeds terrific bargains and big gains, and fear is pounding value stocks. “Companies in areas like energy, financials, and airlines will recover,” says Kalesnik. “Of course, in each sector, you could have bankruptcies. But overall, they’re key sectors of the economy, and their sales and profits will bounce back.”
On the other hand, today’s superstars will attract hungry competitors, are already drawing lots of political scrutiny, and will retreat when investors realize they can never meet Wall Street’s bluebird forecasts and investors’ inflated expectations. Meanwhile, the world is expecting even less, far less, from value than usual. Chances are, the downtrodden will more than meet those paltry expectations. As value shows it can clear that super-low bar, value stocks will deliver strong gains, just as in past recoveries. The best bet is that we’re going back to the future, and value will repeat as champ. And win big.


fortune--2020-08-18--Exclusive: Carrot Fertility closes $24 million Series B in a sign of the sector’s strength

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Fertility benefits provider Carrot Fertility has closed a $24 million Series B round of funding—a broader industry indicator that the once-fringe sector is increasingly becoming part of mainstream health care.
The round, which was undertaken in the middle of the pandemic, was led by U.S. Venture Partners. F-Prime Capital, CRV, Precursor Ventures, Maven Ventures, Uncork Capital, and Silicon Valley Bank also invested in the Series B, which brings the company’s total funding to $40 million.
“What COVID has revealed is fertility care is core and essential,” says Tammy Sun, Carrot’s CEO and cofounder. “It’s not a perk.”
As a case in point, in July, Carrot saw benefits activity—i.e. appointment bookings—surpass pre-COVID levels. “There’s a return to care that is pretty massive,” Sun says. The increase comes off a strong 2019 in which Carrot saw its growth triple.
What has shifted amid COVID-19 is the way customers are accessing care. Carrot has responded by launching telehealth products that let patients begin fertility treatment at home and provide remote guidance to pregnant women. Virtual mental-health chats have quadrupled since pre-pandemic, Carrot says. The company also recently launched a virtual pharmacy so patients can receive medication without having to go to a physical location. Sun says these products were always on the company’s road map but were accelerated by the coronavirus.
In July, Carrot launched a feature that gives U.S. members the ability to be matched with a BIPOC provider. BIPOC are underrepresented in health care, despite research showing that sharing racial or cultural backgrounds can lead to better outcomes, the company says.
Dafina Toncheva, a general partner at U.S. Venture Partners, which led the round, said she’d been watching the sector grow at 10% a year. Assisted reproductive technologies have gotten better, she says, “but the next question is how are these services delivered in a way that makes them more accessible?”
She noted that with current costs and pricing structures, unless fertility treatment is subsidized in the form of a benefit it becomes “completely inaccessible to the vast majority of patients out there.”
USVP had made investments in companies with business models in which the employer is paying for some or all of the service provided, and Toncheva says she liked that Carrot took the same approach. “We think that’s a proven model,” she says. “It’s traditionally a strong way to deliver benefits to individuals.”
As part of her research, Toncheva spoke with some of Carrot’s customers who all told her it was the company’s most popular benefit and that they viewed providing fertility benefits as a key way to attract and retain talent. She was also surprised by the number of companies that referenced Carrot’s ability to offer fertility benefits no matter where an employee is based. “It’s really important as more companies become global in nature,” she adds.
Carrot, which was founded in 2016, now has more than 100 customers including Box, Snap, Slack, and Peloton. Starting last year, Sun says, the company’s customer base started to really diversify beyond just tech companies—another indicator Sun points to as the mainstreaming of fertility benefits.


fortune--2020-08-18--Walmart’s e-commerce sales nearly double as shoppers go beyond groceries in online orders

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Having a network of 4,400 stores where customers can pick up online orders proved again to be a boon for Walmart as the retailer on Tuesday reported U.S. e-commerce sales nearly doubled in the second quarter.
At a time when pandemic-weary customers are going to fewer retailers and visiting those they do patronize fewer times to reduce their exposure, Walmart has been able to capitalize on the interplay between its e-commerce and physical stores—its best defense against Amazon.
Comparable sales in the U.S. rose 9.3% in the three months ending July 31, fueled by grocery orders retrieved at stores and a better assortment of general merchandise. Walmart gets more than half of its revenue from groceries and is the largest food seller in the U.S. The online commerce helped the company overcome a 14% drop in shopper visits as customers consolidated trips, spending far more per visit, or shopped online.
And that helped Walmart get closer to reaching a long-held goal for CEO Doug McMillon: making e-commerce more profitable, with all the costs related to building the infrastructure and shipping expenses. Wall Street analysts had expected sales on Walmart.com to rise 60%, not double. The company has been looking to reduce its e-commerce reliance on grocery by adding more general merchandise, which offers greater margins.
“We’re pleased with the progress we’re making with Walmart.com,” McMillon said on a conference call. “The tailwinds we are experiencing are accelerating our progress to build a healthier e-commerce business as we add new brands and improve product mix.”
Shares were up 3% in premarket trading, putting Walmart’s stock on track to hit an all-time high.
The company got a big boost from government stimulus spending, and sales started to trend downward to more normal levels in July, when comparable sales rose 4%. And there are signs its momentum could slow further: Walmart executives said on the call that back-to-school sales have gotten off to a slow start, with laptops doing well but clothing and backpack sales weak.
“You’re not going to grow e-commerce sales 97% every quarter, and you’re not going to get the benefit of pent-up demand for many items,” says Brian Yarbrough, an analyst with Edward Jones.
The company’s second-quarter success wasn’t limited to its namesake U.S. chain: Sam’s Club’s, long a laggard to larger rival Costco Wholesale, saw comparable sales rise 13.3% and membership enrollments rise 60%. Internationally, however, Walmart’s revenue declined.
Globally, Walmart Inc. revenue rose 5.6% to $137.7 billion, while net income almost doubled to $3.6 billion, even as the retailer spent $1.2 billion on COVID-related expenses such as worker incentives and more intense cleaning of stores.


fortune--2020-08-18--Facebook and NYU researchers discover a way to speed up MRI scans

Researchers at Facebook and New York University have found a way to significantly reduce the time it takes to capture magnetic resonance images, in a breakthrough with potential to transform medical imaging.
By speeding up the process, the new technology could make it easier to use magnetic resonance imaging, or MRI, on patients such as young children, who have trouble sitting still for long periods inside the giant cylindrical machines used to produce the scans.
Currently, scans frequently take more than half an hour, and children are often sedated or anesthetized to help doctors capture good images. The new technology could also eventually make MRIs more useful in helping doctors investigate acute conditions, such as strokes, in which time is critical.
By increasing the number of patients who can be scanned in a day, the technology also has the potential to increase access to MRIs, particularly in developing countries that can afford few of the expensive scanners—which can cost between $1 million and $3 million each.
Mike Schroepfer, Facebook’s chief technology officer, told Fortune that the company is committed to open-sourcing the new technology so it gains wide acceptance. “Tech has been through a lot of fair criticism in the past few years,” he says. But he said the MRI project—on which Facebook and NYU worked for two years—was an example of how technology continued to hold the “possibility to improve a lot of lives” and why he remained excited about working in the industry.
Magnetic resonance imaging uses a powerful magnetic field to align protons in a patient’s body in a certain direction and then uses radio waves to momentarily knock these protons out of alignment. It then analyzes the energy released as these protons snap back into alignment with the magnetic field. Different tissue types emit slightly different energies during this process, and software converts these energy differentials into pixels of differing brightness, resulting in an image. Sometimes doctors inject patients with benign chemicals that enhance the contrast visible in the image.
The Facebook and NYU researchers achieved the MRI speedup by using artificial intelligence to reduce the number of radio pulses the scanner needs to produce an accurate image. The process works a little like “connect the dots,” in which the software learns how to accurately fill in the missing pieces of information between the data points generated by the scanner.
Many researchers and companies have been trying to create A.I. software that can automatically make diagnoses from medical images. But this research is an example of using A.I. to make human radiologists more efficient without trying to replace or even augment their diagnostic expertise. It is simply about getting the MRI scanner to generate an accurate image faster. And yet, as with many deployments of existing A.I. techniques, the business impact can be transformative.
Michael Recht, a doctor specializing in musculoskeletal imaging at NYU Langone Health who participated in the research, said the entire MRI field has spent decades trying to make the scans faster. But past attempts to improve speed by gathering less data have resulted in lower-quality images, making diagnoses of certain conditions, such as small ligament tears, more difficult.
In its initial research, published today in the peer-reviewed American Journal of Roentgenology, the Facebook and NYU scientists looked specifically at 108 MRIs of human knees from people with a range of injuries and conditions and found they could generate the scans four times faster without any loss of diagnostic accuracy. What’s more, a panel of six expert radiologists judged the A.I.-produced scans indistinguishable from traditional scans. In some cases, Recht said, doctors preferred the A.I.-generated images because they were less likely to contain ghostly visual artifacts that tend to be caused by people being unable to hold still enough for the lengthy scanning procedure or by the circulation of their blood during the scan.
Recht said researchers now plan a much larger study at multiple hospitals to confirm their findings. They have also already begun conducting research applying the same technique to MRIs of other parts of the body, such as the brain, and believe they may be able reduce the amount of time the scans take by even greater amounts, gathering images in as little as an eighth or a tenth of the time. This is because, Recht said, the pathologies in other body parts tend to occupy a greater number of pixels in the MRIs compared to those in the knee, where evidence of damage can be just a few pixels in length. That means it requires more radio frequency pulses from the scanner to achieve a diagnostically useful image of the knee using the A.I.-technique.
Initially, the researchers thought they could use an A.I. method similar to the one used for “deepfakes”—highly credible-looking fake videos, often depicting someone’s head on another person’s body or depicting someone saying something in someone else’s voice—to artificially generate the missing data, Larry Zitnick, the Facebook researcher who helped spearhead the project, said. But the scientists soon realized the method created only great looking scans that were also highly likely to be inaccurate.
So the researchers employed a variation on a different A.I. technique that is often used in video compression, in which software learns to take a high-definition image, degrade it into a lower-quality representation, then re-construct the high-definition version from the lower-quality representation. Except, Zitnick said, rather than doing this for a two-dimensional visual image, the A.I. system in this case is working with raw radio frequency data, learning to fill in the missing data points, and then translating that into a three-dimensional visual image.
Zitnick said that while the software learns some general information on how to generate MRI data, for accurate results it needs to be trained on imagery of one specific body part only. He said he envisions manufacturers creating different software modules for each portion of the anatomy that is typically scanned.
Schroepfer said Facebook had been interested in MRI technology because the company had existing expertise in computer vision—A.I. systems that can classify and manipulate images. The company has used the technology in everything from the feature that automatically tags your friends in photos on Facebook to ones that let people search for similar images on Instagram to software the company uses internally to try to prevent terrorist videos and other extremist content from being uploaded.
But, he said, the company was looking to apply that expertise to a new domain. He also said that “having an impact in the real world” and “using A.I. for good” were important motivators for Facebook’s team of A.I. researchers.
The Silicon Valley giant employs one of the world’s leading stables of machine learning experts, and keeping them happy to come to work is an important business goal, Schroepfer said. But, he added, by working on areas outside Facebook’s usual social media businesses, the researchers were more likely to encounter fresh thinking and insights that could eventually prove useful for Facebook’s business too.


fortune--2020-08-18--Former Glossier employees say they faced racism at the brand’s retail stores

This is the web version of The Broadsheet, a daily newsletter for and about the world’s most powerful women. Sign up to get it delivered free to your inbox.
Good morning, Broadsheet readers! Today is the 100th anniversary of the ratification of the 19th Amendment, Michelle Obama gives a rousing virtual address at the DNC, and former Glossier employees say they faced racism while working at the brand’s retail stores. Have a reflective Tuesday.
– Behind the Gloss. A few weeks ago, I got in touch with a group of Glossier retail employees. They wanted to talk about their experiences working for the $1.2 billion makeup brand founded by Emily Weiss, a job that included embodying the company’s mission to “democratize beauty” at the startup’s New York flagship destination.
The experiences these employees described were far from the idealistic vision of beauty industry equality reflected in Glossier’s marketing. In interviews, 18 workers—or “editors,” in the Glossier lingo—told me about regular microaggressions that they say were directed at Black editors and other employees of color by customers and managers, and described how their retail managers—and Glossier as a whole—repeatedly failed to address that behavior.
These employees—who became ex-employees on Aug. 7 when Glossier officially laid off all editors at its retail stores, which have been closed since March due to the pandemic—describe a range of disturbing behavior: a group of customers who, they say, applied blackface with dark shades of concealer without any action from managers; visitors who touched Black employees’ hair and skin and received apologies from managers if they complained after the employee asked them to stop; comments like a manager telling a Black employee interested in purchasing a designer handbag for resale that she “couldn’t afford it.” The slights were personal and constant, the former editors say.
Last Thursday night, this group of ex-employees posted an open letter under the name “Outta the Gloss”—a play on Weiss’s blog Into the Gloss—demanding change at Glossier. The company responded with a blog post describing new policies it plans to enact, followed by an apology posted to Instagram yesterday. Glossier also shared a statement with Fortune, though it declined to comment on the specific incidents described in my story. Included in that statement: “We are grateful to our former colleagues for coming forward to share their lived experiences, and want to apologize and publicly acknowledge the pain and discomfort they experienced.”
The group behind the letter organized following the June protests against racism and police brutality that rocked the nation—and Glossier’s commitment to donate $1 million in support of racial justice, including money earmarked for Black-owned beauty businesses. Several of these editors had individual meetings with Weiss throughout June and July, but, ultimately, they decided that Glossier’s response didn’t go far enough. (The situation has been complicated by the COVID-19 pandemic; with stores closed and the company’s retail workers laid off, many of the promised changes cannot yet be implemented.)
Some of the editors acknowledge that their accusations are similar to those faced by female-led brands like the Wing and Refinery29, whose leaders stepped down amid the scandals. But the former Glossier employees say their aim is not to “cancel” Glossier. As one former employee explained: “If you’re about to be in charge of helping other Black businesses, you need to fix your own house first.”
Read my full story here.
Emma Hinchliffe
emma.hinchliffe@fortune.com
@_emmahinchliffe
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fortune--2020-08-19--This investment fund made a bold bet on Tesla in the early days of the pandemic

Why a year later , the Business Roundtable ’ s updated statement of purpose is more relevant than ever

A British fund that has grown more than seven times faster than peers this year has one big bet to thank.
Scottish Mortgage Investment Trust Plc’s holding of 1.87 million shares in Tesla Inc. has increased in value by more than $2 billion since the end of March as the electric carmaker’s stock price has surged to a record. That, along with investments in other U.S. tech giants and stay-at-home winners, means the fund has provided a year-to-date return of 55% versus 7.1% for its peer group, according to data compiled by Bloomberg.
The growth of the closed-end investment fund — which these days is global and has nothing to do with its roots in mortgages — has helped cement its position in the U.K.’s FTSE 100 benchmark. The shares are among the index’s top five winners of 2020 with a gain that matches its fund performance. Tesla now accounts for about 11% of 12.8 billion pounds ($16.9 billion) in total assets, even though the fund trimmed its stake earlier this year.
Scottish Mortgage “has benefited from good stock picks as well as being in sectors which have been favored during the global pandemic,” Robert Starkey, an analyst at investment research group Morningstar, said in emailed comments. Looking slightly longer-term, its net asset value has more than doubled over the past three years, the fund’s website shows.
Other stocks among the fund’s top ten holdings have been beneficiaries of stay-at-home trends due to the Covid-19 pandemic, including e-commerce giants Amazon.com Inc. and Alibaba Group Holding Ltd., streaming group Netflix Inc., and food-delivery service provider Delivery Hero SE.
Yet it’s Tesla that has been at the forefront of its outperformance. The carmaker’s stock has more than quadrupled this year, fueled by a better-than-expected performance in China and growing anticipation that the company will be included in the S&P 500 Index.
Scottish Mortgage is one of many funds run by Baillie Gifford & Co. that own Tesla stock. That makes the Edinburgh-based investment-management firm the company’s largest shareholder behind co-founder and Chief Executive Officer Elon Musk with a stake across all its funds of about 6.3%.
Stake Trimmed
Scottish Mortgage’s gains would have been even greater had it not cut its stake in Tesla by about 125,000 shares in the first quarter, according to data compiled by Bloomberg. In doing so, the fund missed out on about $164 million in additional value, based on Aug. 17 closing prices.
Among Scottish Mortgage’s current top 20 equity holdings by market value, Tesla was the only one whose stake was reduced during the first half of the year, Bloomberg data show.
In trimming the holding, the fund’s managers were making adjustments to reflect their views “on the overall balance of the portfolio rather than simply the individual Tesla holding,” a spokesman said by email. “The managers remain supportive holders of Tesla,” he said.


fortune--2020-08-19--Revisiting the Business Roundtable’s ‘Stakeholder Capitalism,’ one year later

The one certainty about the Business Roundtable’s “Statement on the Purpose of a Corporation” is that it has elevated that topic to a new height in global policy debates. A year after the BRT announced its new view of purpose on Fortune’s cover, “stakeholder capitalism”—what it means, and what, if anything, should be done to advance it—is a hot issue, sparking hotly opposed views. As the U.S. election approaches, it will only get hotter.
The BRT’s statement was prompted by JPMorgan Chase CEO Jamie Dimon, who was then the BRT’s chairman, and was signed by 184 CEOs of major U.S. corporations. It declared “a fundamental commitment to all of our stakeholders.” The statement detailed specific commitments to customers, employees, suppliers, communities, and shareholders. The placement of shareholders last seemed symbolic, especially since this new statement superseded the BRT’s 1997 statement that “the paramount duty of management and of boards of directors is to the corporation’s stockholders.”
The new statement struck many as potentially revolutionary. It “could be a turning point,” wrote David Ignatius in the Washington Post. “A significant shift and a welcome one,” wrote Andrew Ross Sorkin in the New York Times. Ford Foundation president Darren Walker called it “tremendous news.” We at Fortune said the Business Roundtable “announced a new purpose for the corporation and tossed the old one into the dustbin.”
Though the BRT didn’t use the words “stakeholder capitalism,” the concept and its antithesis, shareholder capitalism, entered conversation like never before. Google searches for “stakeholder” spiked. World Economic Forum founder Klaus Schwab proclaimed that business now had to “fully embrace stakeholder capitalism,” and the theme of the 2020 Davos conference became “Stakeholders for a Cohesive and Sustainable World.” In a major speech on economic policy, presumptive Democratic presidential nominee Joe Biden said in July, “It’s way past time we put an end to the era of shareholder capitalism.”
That’s a powerful head of steam behind stakeholder capitalism, and a year of intense debate has revealed a wide divergence of views.
Think of them in four categories:
It’s a good idea that should be pursued at the corporate level
That’s the BRT’s view. Though the group often supports or opposes government action, it did not call for legislation or regulation to enforce its statement. On the contrary, the whole point is that business on its own can make the world a better place. Johnson & Johnson CEO Alex Gorsky, a BRT member who oversaw the drafting of the statement, said, “It affirms the essential role corporations can play in improving our society.”
It’s a good idea that should be legislated
Sen. Elizabeth Warren and other politicians on the left saw the statement as an opportunity. “If Jamie Dimon thinks it’s a good idea for giant corporations like JPMorgan Chase to have multiple obligations, he and I agree,” she told CNBC last December. “Then let’s make that the law.” (She was referring to her Accountable Capitalism Act, introduced in 2018.) Warren tells Fortune, “I asked 10 major CEOs who signed the Business Roundtable statement to take tangible action to provide real benefits to workers and other stakeholders, but all they’ve offered up are hollow commitments and publicity stunts. If these companies are truly committed to a stronger economy for workers, communities, and other stakeholders, they would make the necessary reforms I have laid out in my Accountable Capitalism Act.”
Another former presidential candidate, Sen. Bernie Sanders, also endorsed the BRT’s change of heart but scorned its statement as “empty words” that “are not enough.” He promised he would “ensure that corporations conduct business in a fair way.” The BRT hasn’t commented on Warren’s or Sanders’s proposals.
It’s PR that doesn’t mean much of anything
“The statement is largely a rhetorical public relations move rather than the harbinger of meaningful change,” say Lucian Bebchuk and Roberto Tallarita of the Harvard Law School in a 65-page article, “The Illusory Promise of Stakeholder Governance.” They argue that the incentives CEOs face have not changed, so their behavior won’t change. The authors also examine corporate behavior when state laws have permitted companies to protect stakeholders other than shareholders; they say they found no evidence that companies do so any more often than when they are not permitted to do so.
Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance, takes a similar view. “To say that shareholder capitalism is dead ignores the fact that the shareholders elect the directors—that’s the shareholders’ only protection,” he says. “And if the directors don’t protect them, the shareholders will vote them out.” In any case, he says, “The BRT statement was unnecessary. You always have to take care of the stakeholders—otherwise the company won’t succeed financially.”
It’s a terrible idea
The head-on argument against the BRT statement is that when CEOs and corporate directors are accountable to many constituencies—customers, employees, suppliers, communities, shareholders—they are accountable to none. “Declaring that directors may consider other interests [than shareholder interests] without giving those interests voting or enforcement rights, or any real leverage to influence decision-making, is more an exercise in feeling good than in doing good,” writes Leo Strine, former chief justice of the Supreme Court of Delaware, where most big companies are incorporated. “In fact, it largely shifts power to the directors to couch their own actions in whatever guise they find convenient, without making them more accountable to any interest.”
Bebchuk and Tallarita argue more bluntly that CEOs and directors are seeking more power for themselves. “The support of corporate leaders and their advisers for stakeholderism is motivated, at least in part, by a desire to obtain insulation from hedge fund activists and institutional investors,” the authors say. “In other words, they seek to advance managerialism”—a system in which managers exercise the most power—“by putting it in stakeholderism clothing.”
The BRT explicitly denies that its members want to avoid accountability. “We have not called for, and do not support, radical changes to corporate governance structures, which could have serious unintended consequences,” the group says in a statement. “We fully expect that shareholders will hold companies accountable if they fail to generate long-term returns. However, our companies are also challenging themselves to do more.”
Bebchuk and Tallarita nonetheless conclude: “Stakeholderism does not benefit stakeholders, shareholders, or society. If stakeholder interests are to be taken seriously, stakeholderism should be rejected.”
What’s next? It had better be action if stakeholder capitalism is to amount to anything. “The possibility of stakeholder capitalism is very real, but right now we’re in the stage of happy talk, and happy talk doesn’t make change happen,” says Peter Georgescu, author of Capitalists, Arise! End Economic Inequality, Grow the Middle Class, Heal the Nation and the former longtime CEO of the Young & Rubicam ad agency. The greatest near-term prospect for action depends on the outcome of the November election. If the Democrats win the White House and the Senate, while holding control of the House, it seems highly likely that large-scale legislation—raising taxes, giving employees more power, and increasing business regulation—will be enacted under the banner of stakeholder capitalism. Whether the CEOs of the Business Roundtable will like it is by no means certain.


fortune--2020-08-19--The mask debate rages on

The mask debate rages on

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning. David Meyer here in Berlin, filling in for Alan.
How important is it to wear a mask at work?
According to the French government, it’s very important indeed. People working in French offices and factories will, from September 1, be obliged to wear masks in all shared and enclosed spaces—unless they’re working alone.
Unions had been pushing for the move, due to fears about worker safety. The timing is intended to help France keep its economy open while dealing with the September reopening of schools and the return of thousands of people who have been vacationing in other countries.
Plenty of European countries now mandate masks on public transport and in shops, but it is still rare to see governments making them compulsory at work.
The U.K., for one, does not seem set to follow in France’s footsteps. Health Secretary Matt Hancock said today that evidence shows most infections take place in the home, so “we are not currently considering” a workplace mask mandate.
Meanwhile, Sweden’s state epidemiologist, Anders Tegnell, has once again reiterated his opposition to masks being forced on the population as some kind of game-changer. “Face masks can be a complement to other things when other things are safely in place. But to start with having face masks and then think you can crowd your buses or your shopping malls—that’s definitely a mistake,” he told the Financial Times.
Tegnell often seems to swim against the tide of COVID consensus, particularly in Europe, but it’s certainly not a bad idea to see masks as part of a wider palette of measures for protecting people during the pandemic.
So, as this mask debate rages on, what should employers do?
Particularly where workers are in direct contact with the public, they could start by listening to Harvard Law School’s Sharon Block and the Ford Foundation’s Rachel Korberg, who have written a wise piece for Fortune that advocates for frontline workers to be given a voice in the reopening of the economy.
“Workers have a key role to play in designing and implementing new, on-the-job health practices—and even more so in the absence of enforceable federal standards,” they write. “If they aren’t able to speak up when they spot a problem, we risk prolonging this crisis, deepening the economic pain, and ultimately losing more lives.”
More news below.
David Meyer
@superglaze
david.meyer@fortune.com
TOP NEWS
Postal Service
Postmaster General Louis DeJoy has suspended reforms at the United States Postal Service until after the election, following an outcry against the potential impact of those reforms on mail-in voting, which will be a popular choice during the pandemic. The move came yesterday, as 20 Democratic states announced plans to sue. So, for now there will be no changes to retail hours at post offices, no removal of collection boxes and processing equipment, and no closure of mail-processing facilities. CNN
S&P high
The S&P 500 ended yesterday on a new high of 3389.78; its previous record was 3386.15 in mid-February. The peak-to-peak period, which included a historic plunge, was just 126 trading days. That makes for the fastest-ever recovery from a bear market. However, many are struggling to reconcile this with the on-the-ground reality of the pandemic and the unemployment it has caused. Wall Street Journal
China talks
President Trump said he cancelled last weekend's planned trade talks with China because "I don't want to talk to China right now." Trump described China's handling of the pandemic as "unthinkable" in terms of its impact on the world. As for whether the U.S. will pull out of its phase-one deal with China, Trump said: "We'll see what happens." South China Morning Post
Mass testing
The British government plans to introduce regular mass testing for COVID-19. Health Secretary Matt Hancock said various new, fast tests were being trialed, and the rollout would take place towards the end of the year. Reuters
AROUND THE WATER COOLER
Business Roundtable
It's a year since the Business Roundtable revised its stance on corporate purpose, de-emphasizing shareholder returns in favor of stakeholder interests. In a piece for Fortune, Richard C. Shadyac Jr. CEO of the American Lebanese Syrian Associated Charities (ALSAC), writes that the pledge is now even more urgent than it was then. "As we move forward post-COVID-19, I urge corporations to stay committed to the pledge and partner with charitable organizations to help build a better tomorrow for all," he writes. Fortune
Office space
Amazon seems set to buck the trend of tech companies, such as Facebook and Twitter, encouraging remote working in the coming years. Amazon is in fact expanding its physical offices and adding 3,500 corporate jobs in New York, Phoenix, Detroit, Denver, Dallas and San Diego. Workforce development VP Ardine Williams: "The ability to connect with people, the ability for teams to work together in an ad hoc fashion—you can do it virtually, but it isn’t as spontaneous. We are looking forward to returning to the office." WSJ
Big Tech
The New Yorker has an interesting profile of Marietje Schaake, a Dutch former member of the European Parliament, who is now teaching at Stanford. Schaake, a liberal in the European sense, has spent much of her career trying to rein in Big Tech. Now she is on its home turf at a time when her ideas no longer seem as outlandish as they once did. New Yorker
Belarus turmoil
The recently "re-elected" Belarusian leader Alexander Lukashenko, who just days ago claimed new elections would take place over his dead body, has responded to a growing protest movement by saying he will support new elections and a power handover after a constitutional referendum. Reuters
This edition of CEO Daily was edited by David Meyer.


fortune--2020-08-19--Global stocks continue to climb after investors pushed the S&P 500 into a new bull market

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Good morning, Bull Sheeters. We are officially in a new bull market. The S&P 500 closed at a record high on Tuesday, erasing all pandemic-induced losses from the past six months. Next stop: the U.S. futures are edging higher again this morning.
Here’s what’s moving markets.
Markets update
Asia
The major Asia indexes are mixed in afternoon trade, with Japan’s Nikkei leading the way higher, up 0.3% .
are mixed in afternoon trade, with leading the way higher, up . “I don’t want to talk to China right now,” President Trump declared at a campaign stop on Tuesday, explaining why last weekend’s trade talks between the two economic powers were unceremoniously halted, and casting huge doubts on the future of the Phase 1 deal.
declared at a campaign stop on Tuesday, explaining why last weekend’s trade talks between the two economic powers were unceremoniously halted, and casting huge doubts on the future of the Phase 1 deal. New Zealand has gone from zero to 74 COVID cases in a little over a week, and now it’s deploying the military at its borders to keep the outbreak at bay.
Europe
The European bourses were higher two hours into the trading session, with the Europe Stoxx 600 edging up 0.2% .
were higher two hours into the trading session, with the edging up . Shipping giant A.P. Moller-Maersk , a big indicator for world trade, raised its full-year outlook this morning as it sees Q3 volumes picking up. Shares were 5.5% higher in the first half-hour of trading.
, a big indicator for world trade, raised its full-year outlook this morning as it sees picking up. Shares were higher in the first half-hour of trading. Euro appreciation against the dollar has been the big FX story in recent weeks. Even though the greenback has fallen to multi-year lows against a basket of currencies, Morgan Stanley isn’t giving up on “king dollar.” It just picked it as its best safe-haven currency.
U.S.
The U.S. futures are pointing to a positive open (they’ve been tracking higher all morning) following yesterday’s historic run that saw both the S&P and Nasdaq finish in record territory.
are pointing to a positive open (they’ve been tracking higher all morning) following yesterday’s historic run that saw both the S&P and Nasdaq finish in record territory. Home Depot is flat in pre-market trading after the retailer disclosed blockbuster results yesterday with Q2 sales jumping 25% higher .
. It’s official: the Democratic Party nominated Joe Biden as its presidential candidate on the second night of the DNC convention following a virtual roll call. It’s as good a time as any to revisit this piece: why Wall Street this time isn’t freaking out about the prospect of a Democrat in the White House.
Elsewhere
Gold has dipped below $2,000/ounce .
has dipped below . The dollar too is down.
too is down. Crude too is lower ahead of today’s OPEC meeting.
***
A new bull market
The economy may be in the doldrums, but the benchmark S&P 500 has just pulled off the unlikeliest of V-shaped recoveries (and then some). And it did so in record time, recovering more than 50% of its value in a little over 100 days.
For the year, the S&P is up an impressive 4.9%. Being true bulls, I’m sure none of you dumped your shares in late March as things looked their bleakest. No, of course not.
The biggest take-away of this rally is more a reminder than a lesson. It’s a simple one: don’t ever, ever, ever fight the Fed. The central bank’s commitment to loose monetary policy, and to keep credit flowing on the cheap were pivotal moves in giving equities a fighting chance as the broader economy crashed into recession.
“Even the most optimistic people in March were unlikely to have expected the market to recoup all of its losses in less than five months,” Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, wrote to investors yesterday. “However, the massive amounts of liquidity that the Federal Reserve has injected into the system is as big reason for the stunning recovery that we have just witnessed.”
But the victory party has been a muted one. The economy is still on the slow road to recovery. Unemployment is skyrocketing. And lawmakers are at an impasse as to how to get aid to the hardest hit segments of the U.S. economy. This all adds up to a lot of pain for a lot of Americans.
It’s a disconnect that’s hard to ignore.
“Many continue to wonder why stocks are at new highs with 10% unemployment and nearly a million people filing for initial unemployment claims,” Ryan Detrick, Chief Investment Strategist for LPL Financial, wrote in an investor note. “The truth is economic data is backward looking and stocks are looking ahead to a much brighter future.”
“From a 34% bear market to new highs,” he continued, “2020 is record breaking and heartbreaking all at the same time.”
Record breaking and heartbreaking. That’s as good a description for 2020 as any I’ve read.
***
Have a nice day, everyone. I’ll see you here tomorrow.
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 reads
Overtaking the "wolf." Tesla's share price surge on Monday added $7.8 billion to founder Elon Musk's net worth. That burst vaulted him over France's Bernard Arnault, the luxury goods magnate nicknamed the "wolf in cashmere," on Bloomberg's Billionaires Index.
On elections and stocks. What would happen to the stock market if America were to go through a good old fashion constitutional crisis in which the November presidential election were contested? Sadly, it's not as far-fetched as it sounds. Fortune's Anne Sraders talks to investment pros who lay out the good/bad/ugly scenarios for just such a possibility.
Buffett and the banks. Last week, Berkshire Hathaway revealed it had dumped its bank holdings for, among other things, a gold mining firm. Does that mean it's time to short Big Finance? Not so fast, says Fortune's Shawn Tully. There's plenty of value in the beaten-down banks, he points out.
Some of these stories require a subscription to access. There is a discount offer for our loyal readers if you use this link to sign up. Thank you for supporting our journalism.
Market candy
Quiz time
Which of these Nasdaq-listed e-commerce specialists is the best performing stock of 2020?
A) Amazon
B) Wayfair
C) Shopify
D) Overstock.com
The answer is D. Overstock's share price is up more than 1,500% YTD, a rise that's made a lot of investors a windfall, with one notable exception: the Overstock founder. Here's why he's missed out on a rally of a lifetime.


fortune--2020-08-19--Why a year later, the Business Roundtable’s updated statement of purpose is more relevant than ever

China just issued its first COVID vaccine patent .
What it means for the vaccine race

Last August, nearly 200 of the world’s top business executives announced a new purpose for their corporations. Maximizing returns for shareholders would no longer be the defining mission of their companies, they said in the historic Business Roundtable commitment.
They pledged that moving forward, their bottom lines would include the interests of broader stakeholders: employees, communities, future generations. It was a hopeful declaration that would see companies’ traditional corporate social responsibility (CSR) efforts shifting from peripheral programming to driving an integrated ethos.
But the world has dramatically changed since then. In the face of economic turmoil driven by a once-in-a-generation global pandemic, will these corporations remain devoted to purpose?
The crucible events of 2020—the COVID-19 outbreak and a reckoning with racism in both our country’s past and present—have exposed America’s vast social, health, and economic disparities. Black and Latino populations—who disproportionately make up “essential” workers and are less able to self-isolate—have contracted COVID-19 at rates up to three times as high as white Americans. And Black Americans are up to six times as likely to be killed at the hands of police as white Americans. These recent events are clear reminders of our country’s lack of progress on equality and demonstrate why last year’s proposed concept of purpose is more important now than ever.
True, corporate America stepped up during the early days of the coronavirus, donating capital and personal protective equipment and engaging in other efforts to address the crisis. And while many companies have offered performative gestures in support of the Movement for Black Lives, some have committed to real change and supporting worthy causes.
But we cannot allow these to be here today, gone tomorrow commitments. The pledge made last year was for the long term, as the business leaders committed to “the future success of our companies, our communities, and our country.”
A retreat from purpose would not be without precedent, after all: Other black swan events, including 9/11 and Hurricane Katrina, initially saw a post-event surge of corporate social responsibility, only to see those efforts wane as business objectives turned to financial recalibration and growth. (One survey of 264 Fortune 1000 CEOs conducted in 2002 reported that 36% of respondents said their company “is more conscious of corporate social responsibility” as a result of 9/11, but only 9% reported spending more money on CSR.)
Charitable organizations like ours celebrated the Business Roundtable pledge, hoping to find more willing partners to walk hand in hand in support of our various missions while unlocking their purpose and driving value to their companies and stakeholders.
In the months following the Business Roundtable announcement, our optimism proved to be warranted. We welcomed those who wanted to go deeper in service to social good. Corporations invested in charitable organizations as partners in new, creative ways. This resulted in better outcomes not only for our missions, but also for the corporate partners, many of whom saw increases in revenues, audience loyalty, and employee recruitment, retention, and overall satisfaction.
A study last year, for instance, showed that job listings that highlighted a company’s social good initiatives had 25% more applicants than listings that highlighted the same position’s salary range. The researchers surmised that the company would have to raise salaries by a third in order to compete with simple messaging of social impact.
A different study in October demonstrated the importance of CSR for consumers: 600 adults surveyed said they want to know what the brands they support do for the benefit of advancing social and environmental issues (and 46% are influenced by this information when they make a purchase.)
The Business Roundtable announcement wasn’t without detractors, however. Cynics argued the move was largely a publicity stunt to mollify a frustrated public, who assigned blame to corporate America for many of the country’s greatest ills, from income inequality to climate change.
But there is no place for cynicism in my line of work. At our core, charitable organizations are powered by the fires of idealism and a resolute belief in humanity’s kinder attributes. Our heroes are the ones who have walked intentionally toward social good, amplifying unheard voices and embracing inconvenience in exchange for more just outcomes for all.
Despite all of the challenges the corporate world is facing, it cannot back down from the Business Roundtable commitment. In fact, that pledge is even more urgent now than when it was made in the midst of relative prosperity a year ago. Charitable organizations are well positioned to assist by reminding corporate America of its self-proclaimed purpose and offering ways to help it stay true to those ideals.
As we move forward post-COVID-19, I urge corporations to stay committed to the pledge and to partner with charitable organizations to help build a better tomorrow for all. In the midst of death, sickness, racial and social injustice, and economic hardship, our world needs these partnerships now more than ever. Lives hang in the balance.
Richard C. Shadyac Jr. is president and CEO of the American Lebanese Syrian Associated Charities (ALSAC), the fundraising and awareness organization for St. Jude Children’s Research Hospital.


fortune--2020-08-19--Australia signs a deal for AstraZeneca’s COVID vaccine—and considers making it mandatory

Australian Prime Minister Scott Morrison suggested on Wednesday that coronavirus vaccines may be mandatory for Australian citizens, after Australia’s government inked a deal for enough doses of the promising Oxford University vaccine candidate for all 25 million of its citizens.
“I would expect it to be as mandatory as you could possibly make it,” Morrison told Australian radio station 3AW. “There are always exemptions for any vaccine on medical grounds, but that should be the only basis.”
Australia signed an agreement with pharmaceutical giant AstraZeneca to produce and distribute AZD1222, the coronavirus vaccine candidate licensed to AstraZeneca and developed by researchers at Oxford University, Morrison announced late Tuesday.
AZD1222 is widely considered the global front-runner in coronavirus vaccine candidates. It is currently in Phase III clinical trials, which will test the efficacy and safety of the vaccine in thousands of human volunteers. Australia’s government is also supporting vaccine development efforts by researchers at the University of Queensland and Australian biotech firm CSL Ltd., but the Oxford vaccine is “more advanced,” Morrison said.
If clinical trials for the vaccine are successful, Morrison said on Wednesday, doses will be made available to Australians “hopefully early next year. If it can be done sooner than that, great.”
Vaccine doses will be free and available to the whole population, but health care workers and more vulnerable groups like elderly people and people with disabilities may get priority access. For a vaccine to work, at least 90% of the population needs to be inoculated.
Morrison told 3AW that Australia needs “about 95%” of the population to be vaccinated, and he said he is prepared for possible backlash at the prospect of a mandatory vaccine.
“I was the minister that established ‘No jab, no play,’ so my view on this is pretty clear,” Morrison said.
“No jab, no play” refers to national and state legislation that requires children to meet certain vaccination requirements for families to receive childcare services and other subsidies. The government introduced the program when Morrison was Australia’s minister for social services, and in 2015, Morrison announced that “conscientious objector” exclusions from the immunization requirements would no longer be given out.
“We need the most extensive and comprehensive response to this to get Australia back to normal,” Morrison said, adding that the government has not yet made an official decision on making vaccines mandatory and will do so when trials are finished and more medical information is available.
By comparison, Anthony Fauci, director of the U.S. National Institute of Allergy and Infectious Diseases, told Healthline on Tuesday that he does not think the U.S. government will make a coronavirus vaccination mandatory.
According to data from the Organization for Economic Co-operation and Development (OECD), 95% of children in Australia are vaccinated against measles, higher than the 92% figure for the U.S. and 90% in Canada, and lower than other countries including Portugal, Japan, and Greece at 99%.
Australia had one of the world’s most successful coronavirus responses earlier this year, logging no more than 50 daily cases between late April and late June, but an outbreak at a hotel for quarantining return travelers sparked a second wave. A total of 438 people have died of COVID-19 in Australia, almost 24,000 have been infected, and 15,000 have recovered.


fortune--2020-08-19--U.S. will conduct an unofficial dry run of a COVID-19 vaccine campaign this fall

This fall, the U.S. will need to vaccinate huge numbers of Americans in the middle of a public-health crisis. It will also be a valuable dry run should a coronavirus shot arrive months later.
The annual U.S. flu vaccine campaign has been cast into disarray by COVID-19, with people staying away from pharmacies, schools, offices, hospitals and other places where they typically get their shots. But with fears of a flu surge colliding with the coronavirus pandemic, health authorities are looking at how one vaccine effort can inform the other.
In Denver, public-health officials are trying to increase the number of adults who get the flu vaccine this year to 65% from 45%. To do it, they’re setting up “strike teams” that can go from school to school giving vaccines, vans that can stop at construction sites and inoculate workers, and doing outreach to hard-to-reach communities.
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“This whole model that we’re building can then be moved into COVID,” said Judith Shlay a physician and associate director at Denver Public Health.
In Baltimore, the city has several vans it sends out to conduct COVID-19 testing, targeting high-risk residents. It will likely use those vehicles for flu vaccines and then COVID-19, City Health Commissioner Letitia Dzirasa said in an interview.
“Our flu vaccine distribution will inform a Covid vaccine distribution,” Dzirasa said.
The federal government has helped lead development of a vaccine, issuing more than $4 billion in contracts to drugmakers. The money is meant to speed production and cut financial risk for the most promising of the dozens of inoculations in development. President Donald Trump has said a shot could be ready by November, though other experts inside his government predict it will be well into 2021 before most Americans have access to one.
So far, federal health authorities have offered little detail about their plans for administering vaccines. The U.S. has said that it will likely rely on the private sector to distribute the shots, and last week extended a contract to health-care supplier McKesson Corp potentially worth more than $300 million. But the government has said almost nothing about who will get the shots first, where they’ll be given, and how to make sure they get to hard-to-reach and vulnerable communities.
At least 170,000 people in the U.S. have died of the virus, many of them as a new surge of cases has expanded outside the Northeast to other parts of the country. While new cases have fallen from last month’s daily high of almost 80,000, new outbreaks are being reported in schools and colleges as students return, forcing some to shut days or weeks after opening.
This week, the U.S. Centers for Disease Control and Prevention plans a call with health-care providers to discuss flu vaccination, along with guidance for delivering vaccines during the pandemic and operating “large vaccination clinics held in satellite, temporary, or off-site locations.”
In the meantime, local authorities are still awaiting clarity. “We have not heard anything yet,” Baltimore’s Dzirasa said.
The U.S. has been consulting with experts and medical ethicists on COVID-19 vaccine allocation plans. The government plans to work with the existing medical-distribution network to get shots to the public, said a senior Trump administration official, with possible help from the Defense Department.
Never Done Before
There is no single national U.S. flu vaccination campaign, per se. American and global health authorities pick the flu strains to target, drugmakers manufacture the shots, and they’re given by workplaces, schools, drugstores, local public-health departments, physicians and hospitals.
The federal government typically plays a role in financing and promoting the vaccines, but not in physically distributing them. This year, the Centers for Disease Control and Prevention has purchased 9 million doses of the adult flu vaccine, compared with 500,000 in a normal year.
The scale of the vaccination campaign needed for COVID-19 will be a daunting logistical challenge, said Howard Markel, a physician and historian of medicine at the University of Michigan School of Public Health. Past efforts to vaccinate against pandemic threats have fallen short.
“We’ve never vaccinated an entire American population,” he said in an interview.
In 1976, after an outbreak of swine flu at Fort Dix in New Jersey, the Gerald Ford administration planned a mass vaccination program to prevent a pandemic. “They were held in large gymnasiums and public meeting places,” said Markel, who recalled getting the shot when he was 16. “It was really very much an assembly line.”
The vaccination drive was dismantled after several cases of Guillen-Barre syndrome were identified in people who got the shots. A U.S. review of the campaign in 2003 confirmed the increase in cases of the disease, which can cause a form of muscle weakness or temporary paralysis, though the exact biological link between the vaccine and the condition wasn’t established.
In 2009, the H1N1 flu pandemic prompted another effort to quickly produce vaccines. Ultimately, only about 20% of the population got the shot, Markel said.
“It is an enormous task, no question about it,” Markel said.
Public-health officials will also have to overcome reluctance by some Americans to get a shot. An Aug. 7 Gallup poll found that one-third of people would not get a COVID-19 vaccine when it’s ready, even if it was free. And some Americans have rejected basic public health measures like wearing masks or social distancing, raising more questions about how willing they are to participate in a vaccine campaign.
Some vaccine infrastructure already exists. A surge in demand for COVID-19 tests had drugstore chains, states and cities set up sites where people could line up or drive through. And the H1N1 flu pandemic also provided a roadmap for mass vaccination, said CVS Health Corp. Chief Executive Officer Larry Merlo.
“That was really the spark plug,” Merlo said in an interview this month. The company is in planning sessions with officials for an eventual coronavirus vaccine, Merlo said.
A spokesperson for Walgreens, the next-largest U.S. pharmacy chain behind CVS, said both existing testing and immunization infrastructure will support the future delivery of Covid vaccines.
Sanofi, the French drugmaker that’s working with GlaxoSmithKline Plc on a coronavirus vaccine, said it’s been in touch with CVS and other drugstores about vaccination plans.
“I would suspect that some of the blueprint that we’ve developed for flu immunization will also hopefully be a blueprint for COVID-19 vaccination,” said Elaine O’Hara, Sanofi’s head of vaccines for North America.
Denver Plan
At Denver’s public health department, Shlay said she began thinking about how to deliver COVID-19 vaccines back in June.
She knew childhood immunizations had dropped sharply since March, when COVID shut things down, and she thought her agency could build a model to get a COVID-19 vaccine to people who need it.
Under a $1 million grant from the CARES Act, the federal stimulus law to respond to the pandemic, her team has begun working on alternative flu vaccination strategies. The strike teams they are developing will be targeted at 84 schools where vaccination rates have slipped. And the agency is working with leaders from the Black, Hispanic, Asian and Native American communities to bring flu-shot sites into neighborhoods.
Particular outreach will focus on uninsured and unemployed adults — some of the same people are more likely to be hospitalized if they get sick — along with essential workers and people who are homeless.
“We are going to try to reach that group that people don’t always think about,” Shlay said.
There will be challenges making the switch to COVID-19. Early vaccines are expected to require two shots weeks apart, compared with a single flu dose. Health officials will have to keep careful registries of who has received which shots when, and make sure to reach people when their second doses are due. They’ll also have to handle the logistics of keeping vaccines refrigerated at the proper temperature.
“A two-dose COVID vaccine will be much more complicated,” Shlay said. That’s part of the reason Denver health officials are planning now. “COVID has made us do things quicker than we’ve ever done before, and so we figure it out and we do it.”


fortune--2020-08-19--What to do if you lost money on an event canceled because of COVID-19

It’s disappointing enough to have an event canceled after looking forward to it for months, but then losing money on something you didn’t get to experience at all (and might never again) adds insult to injury.
More than half of U.S. adults (54%) who paid for activities canceled owing to the pandemic have lost money, according to a new study by Bankrate.com. The most common categories for money loss include canceled short-term home rentals (49%), sporting events (48%), flights (47%), concerts (45%), live theater (43%), and hotels (36%).
Bankrate, in partnership with U.K.-based market research firm YouGov, conducted the survey in late July, with a total sample size of 2,624 U.S. adults. While Bankrate did not have hard numbers on the dollar amounts of how much people lost on average, the financial services company did get insights into how often consumers were able to obtain full refunds, partial refunds, less than half the original purchase price, or nothing at all on the aforementioned six core categories.
Travel and larger events, like live concerts and major sporting events, are sometimes booked several months in advance. And even for travel this summer, many people had already booked trips well before the onset of the pandemic. The most common cancellations outright with little to no chance of getting a refund have been for hotel and flight reservations as well as live concerts. Nearly six in 10 people who haven’t received refunds for canceled travel plans said they have already completely given up their efforts in trying to receive a refund.
About a third of Americans who booked but then canceled short-term home rentals got some (but not all) of their money back, while less than a quarter of consumers got partial refunds for canceled flights, hotel stays, and live music and sporting events. Among those who received refunds from canceled activities, 69% said the longest they waited was a month or less.
Ted Rossman, an industry analyst at Bankrate, says that this suggests it’s a “boom or bust” period, meaning customers either get their money back quickly or not at all.
“The biggest problems I’ve been hearing about have to do with intermediaries, for example, ticket resale sites and travel agencies,” says Rossman. “It has to do with who has the customer’s money. Essentially, it was already paid out to someone else, and now the original purchaser wants it back, and the intermediary doesn’t have enough funds to make good on that.”
Rossman points to StubHub as an example. “The main flaw in their business model was that they paid sellers in advance of the event; they’ve since adjusted, and no longer do this,” Rossman explains. “They never thought that thousands upon thousands of events would be canceled all at once. This left them with insufficient funds to repay the buyers, so they’re offering a 120% future credit, which many people are upset about. They want their actual money back, and they don’t know when they’ll be able to attend a sporting event or concert again.”
Also a curious finding: Researchers found consumers earning $40,000 or less per year were more likely to give up hope compared with those earning $80,000 or more per year. Rossman admits this statistic surprised him.
“I don’t really know, to be honest. Maybe they paid less for the tickets in the first place? Although adjusted for income, even a lower ticket price could still be significant relative to one’s overall means,” Rossman says. “It could also be that lower-income households have less spare time to spend wrangling for a refund. Or they just think it’s hopeless, like the system is stacked against them, and they don’t have the power to fight back.”
Rossman says the most common complaints he has been hearing are regarding ticket resale sites, short-term home rentals, and online travel agencies. In all three cases, they’re the intermediary.
For consumers looking for refunds, Rossman suggests to start requests with the original point of purchase. If the merchant isn’t cooperative, consumers should next look to their credit or debit card issuers as a backup. A third option is to appeal to the individual ticket seller, homeowner, or travel provider.
“While everyone’s situation is different, I’d urge persistence. Be polite but firm,” Rossman says. “Be willing to make several attempts via phone, online chat, email, and consider other alternatives such as arbitration and small-claims court.”


fortune--2020-08-20--Airbnb’s 3 biggest challenges on its road to an IPO

It would cost $ 1 trillion to move global supply chains out of China—but the long-term gains could be worth @

Airbnb is forging ahead with an initial public offering, despite a host of challenges.
The home rental service on Wednesday said it had confidentially submitted paperwork to the Security and Exchange Commission for an IPO. The number of shares that it will sell and their price have not yet been determined, the company said.
The move comes just three months after Airbnb cut nearly 2,000 employees, or 25% of its workforce, due to the slowdown in rentals caused by the pandemic. And it’s unclear whether people will continue to shy away from traveling after the outbreak ends.
“This is a very bold, gutsy, counterintuitive move,” Henry Harteveldt, analyst at travel industry research firm Atmosphere Research, said before bringing up the rising share prices of many companies while the economy cratered due to the coronavirus. “But the stock market seems to be divorced from the reality of the rest of the world. … So while the iron is hot, why not strike?”
Here are three of the biggest challenges Airbnb faces.
Coronavirus concerns
As the coronavirus continues to spread, Airbnb will be challenged to convince consumers that its rentals are safe.
In May, the company implemented new cleaning protocols that were developed with former U.S. Surgeon General Dr. Vivek Murthy and other experts in medical hygiene and hospitality. The app identifies hosts who follow the new protocols, which includes using certain cleaning products and leaving a 72-hour window between bookings.
But Harteveldt said that may not be enough compared to the big money that hotels are spending to convince travelers that their facilities are safe. While hotels have been inconsistent in following their own cleaning standards due to reduced staffing, they are better at assuring travelers that they, in fact, are following those new policies, Harteveldt said.
“No one is winning this battle,” he said. “But the public perception is worse for home sharing than it is for hotels.”
Profit problems
Tech investors increasingly want companies to focus on profits rather than growth at any cost. After posting multimillion-dollar losses in 2019, Airbnb will have to show that it make money—even as the coronavirus decimates the travel industry.
During the first nine months of 2019, Airbnb reportedly lost $322 million, compared to a $200 million profit a year prior, according to the Wall Street Journal. Meanwhile, people are traveling less to avoid contracting the virus.
But Airbnb has said that it’s seen some progress. In July, the company said that rentals in rural areas jumped 25% year-over-year during the previous month. And on July 8, guests booked more than 1 million nights of future stays worldwide—the first time that had happened since March.
But Paul Condra, an analyst focused on emerging tech companies at research firm PitchBook, said that these numbers only tell part of the story. “The big question is what’s happened in cities, and how much of their inventory is there?” he said. “The cities probably aren’t recovering as fast.”
Rebuilding trust
Airbnb has had its fair share of incidents that have upset its guests and hosts, and those could complicate matters for its IPO.
The company has struggled to control unauthorized parties, at least two of which have led to shootings. It also allowed fraudulent listings that led to guests being scammed out of their deposits. And after recently opting to fully refund guests who needed to cancel their rentals because of the coronavirus, it ended up upsetting both hosts and guests in the process. Some Airbnb guests argued the refund process was complicated while hosts complained that the company didn’t do more to compensate them for their lost income.
“Airbnb is nothing without its hosts,” Harteveldt said.
And customers, most of whom Harteveldt said only use the service once or twice a year, may not return after having to jump through hoops to get their canceled trips refunded.


fortune--2020-08-20--Will Facebook’s QAnon crackdown succeed? What people are saying so far

Facebook is taking sweeping action against various extremist groups, including Qanon, the nonsense conspiracy theory movement that claims President Trump is battling a global cabal of pedophiles.
On Thursday, Facebook announced it has removed “over 790 groups, 100 Pages and 1,500 ads tied to QAnon” from the site, and imposed additional restrictions on accounts and hashtags on both Facebook and Intagram.
The move comes after numerous media reports about how Facebook’s quest for viral “engagement” has fanned extremism in the U.S. political system, and helped QAnon’s deranged and much-debunked ideas to flourish. A recent NBC report, for instance, describes how QAnon groups radicalized a woman into attacking a mask display at Target, and another into going berserk about masks at a Florida city government meeting.
In announcing its new anti-extremism efforts, Facebook said it would allow users to continue to voice non-violent support for QAnon and other fringe movements, but that it was changing its “Dangerous Individuals and Organizations policy” to undercut their ability to organize.
In practice, this means Facebook’s algorithms will no longer recommend users join QAnon groups, and will downgrade the prominence of QAnon in its news feed. Meanwhile, it will also bar people from using terms like QAnon to sell merchandise.
The question is whether any of this will actually do anything to check the rapid spread of the QAnon movement, whose adherents include a Florida GOP nominee who is expected to win a seat in Congress this November.
The initial response by many on Twitter to Facebook’s announcements was decidedly skeptical, reflecting the deep levels of mistrust the company has engendered after years of privacy scandals and a reluctance to police its platforms.
The advocacy group Sleeping Giants was quick to dismiss Facebook’s new initiative, citing examples of the company’s earlier missteps.
You’ve already touched off a genocide in Myanmar, live-streamed the murder of 52 Muslims in New Zealand and are essentially responsible for making QAnon what it is today.
Save it.#StopHateForProfit — Sleeping Giants (@slpng_giants) August 19, 2020
Other users panned the initiative as an insincere measure to deflect political and media criticism:
Summary: we’ll tell you what you want to hear, do nothing, and string you along until the next congressional hearing — Anna just Anna (@atheniangal1) August 19, 2020
Meanwhile, a number of other Twitter users—many of whom lean left compared to the general population—did not focus on the QAnon announcement, but instead blasted Facebook for also including the radical Antifa group in Thursday’s crackdown.
This is outrageous. Equating antifa with QAnon betrays how Facebook fundamentally doesn’t grasp the issue.
The far right thrives by spreading disinformation. One of the underrated aspects of Antifa is that spreads accurate information about the bad actors on the far right. https://t.co/mdFbZ5KUWL — David Neiwert (@DavidNeiwert) August 19, 2020
Despite widespread cynicism about Facebook’s announcement, it’s notable that some of those most familiar with the spread of QAnon cited Thursday’s move as significant, including journalists who have covered the movement extensively.
The biggest move IMO, Facebook will no longer feature Qanon groups and pages in the “recommendations” sidebar. This is a big deal. — Brandy Zadrozny (@BrandyZadrozny) August 19, 2020
As someone who has seen innocent family and friends get caught up in Facebook's QAnon conspiracy circles via regular news and community content, this is huge. https://t.co/WHnzsf9Box — Andy Campbell (@AndyBCampbell) August 19, 2020
The most realistic assessment may have come from New York Times journalist Kevin Roose, who has long reported on social media problems, and who warned that any crackdown by Facebook could be undermined if the QAnon groups reorganize under different labels:
This is a big deal. And will be an even bigger deal if Facebook keeps enforcing against these groups when they (inevitably) try to reorganize and come back under new names. https://t.co/UfUgmG4ekL — Kevin Roose (@kevinroose) August 19, 2020
Facebook’s appeared to acknowledge that its new measures against Qanon may only have a temporary effect, noting in its statement that these “movements and groups evolve quickly.” And in a comment to NBC, a company spokesperson predicted a longer term challenge.
“We 100 percent know that they’re going to change their terminology. We don’t think we’re flipping a switch and this won’t be a discussion in a week,” said the spokesperson.


fortune--2020-08-19--Prominent Silicon Valley tech company departs for Denver

Palantir Technologies, the data-mining company on the verge of going public, is moving to Denver, following a flight from Silicon Valley by chairman Peter Thiel and CEO Alex Karp.
The company was founded 17 years ago a few miles from Stanford University in Palo Alto, Calif., and has grown to occupy a significant presence in the upscale college town. The company has a dozen or so properties scattered across Palo Alto’s downtown, which are now empty as employees work from home to slow the spread of the coronavirus.
Palantir changed its website earlier this week to list Denver as its new headquarters. A company spokeswoman declined to comment.
Thiel and Karp have publicly questioned the value of remaining in California and recently pulled up stakes in the state they’d called home for decades.
Thiel, a prominent supporter of U.S. President Donald Trump, has loudly criticized the Valley, calling it a liberal mono-culture, and moved himself and some of his investment firms to other parts of the U.S. Karp relocated to New Hampshire earlier this year and is working in a home office he calls “the barn.”
The decision to move the headquarters comes as Palantir is expected to soon enter the public markets. The company plans to list shares directly in late September, Bloomberg previously reported. Venture investors last valued the company in 2015 at $20 billion, with the value fluctuating since then on the secondary markets.
The Denver Business Journal reported the move earlier Wednesday.


fortune--2020-08-19--Streaming fees could rise 5% as cities sue to impose a ‘Netflix tax’

Your Netflix bill could go up by around 50 cents a month if cities succeed in a series of lawsuits to force the streaming giant—and competitors Disney+ and Hulu—to begin collecting a tax aimed at cable companies.
In lawsuits filed over the past week, Indianapolis and four other Indiana cities say that companies like Netflix should pay a “right of way” tax for accessing municipal telephone infrastructure like cables and telephone poles. A town in Texas filed a similar case on behalf of other cities in that state, and if the cases are successful, other cities are likely to follow suit.
The premise of the lawsuits may seem far-fetched—it’s hard to see how Netflix is accessing municipal infrastructure anymore than you are with your home Internet connection—but the money at stake is serious. In the case of Porter County, Indiana, for example, the district earns nearly half a million dollars a year from “video franchise fees” imposed on cable companies.
According to Toby Bargar, a senior tax consultant at Avalara, cities are seeking to impose the cable company tax on streaming services in order to make up revenue lost as a result of cord-cutting. As more consumers ditch their cable companies, it means fewer are paying local taxes for TV entertainment, which are capped by federal law at 5%.
The idea of taxing Netflix and Disney for accessing municipal rights-of-way is a long shot, according to some lawyers. But Bargar says that, in the absence of new laws aimed specifically at the streaming services, cities are trying to shoehorn them into existing tax regimes.
The fight is not a new one, and grows out of the fact that federal law prohibits cities and states from taxing Internet access—that’s why you don’t see a series of fees on your Internet bill like you do on wireless or cable bills. The plaintiffs in the new cases are essentially arguing that streaming services have more in common with cable TV operators than they do with the Internet.
The recent lawsuits over “right of way” come after states like Florida and Chicago, as well as the city of Chicago, have found ways to tax the streaming giants using other existing laws—in Chicago’s case, it used a decades-old “amusement tax” aimed at carnivals.
Netflix, Disney and Hulu did not immediately respond to questions about whether they will fight the new lawsuits in court. If they do, the cases could drag on for years—or until cities and states tweak their tax laws to define streaming companies as cable companies.


fortune--2020-08-19--These 2 home improvement stocks are up 30% this year. They’re still a buy

By the look of it, Americans have been rolling up their sleeves during quarantine and tackling those home-improvement projects. And investors seem equally eager to build a foundation for big gains on the resurgence of DIY.
With people spending a lot more time indoors, it’s no surprise home-improvement retailers Home Depot and Lowe’s have seen a huge boost to sales—and their stocks—in the past several months.
On Tuesday, Home Depot posted impressive second-quarter earnings, with profits soaring 24.5% year over year to $4.3 billion, while sales came in at $38.1 billion. And Bank of America analysts believe it “will not be the last of [Home Depot]’s strong run,” they wrote Wednesday. Lowe’s, meanwhile, posted a 30% surge in revenue for the quarter on Wednesday, with profits jumping a massive 68.7% from the year-earlier quarter, to $2.8 billion.
“Home is definitely the one place people are spending money on,” Edward Jones’s Brian Yarbrough recently told Fortune. “People aren’t going on vacation, so instead of spending that $5,000 or $10,000 on vacation, people are putting it into their homes.”
For Lowe’s, some of that boost may be temporary owing to the coronavirus, Morningstar’s Jamie Katz argued in a note Wednesday. But Katz believes the company’s “cost improvement is permanent, stemming from efforts that the management team has undertaken to improve merchandising and the supply chain over the past few years.” That means the DIY retailer will continue to grow (perhaps not at double digits, but around 2% to 3%, Katz offers) as the boost to home improvement should continue the rest of the year. (Read Fortune‘s interview with Lowe’s CEO Marvin Ellison.)
In turn, while archrival Home Depot’s growth may also lose a bit of steam, Katz expects gains to continue in the retailer’s third quarter.
But with all that growth, are the two stocks still worth getting into now?
Building on big returns
Both retailers’ shares are up roughly 30% so far this year, boosted by their respective earnings this week. (From Tuesday’s close through Wednesday’s close, Lowe’s shares were up 0.2%, while Home Depot fell 0.75%.)
That means jumping on the bandwagon now doesn’t come cheap. Lowe’s ratio of price to estimated earnings for the next 12 months is around 21, which Morningstar’s Katz describes as “rich,” while Home Depot trades at around 26 times estimated forward earnings. The industry average is around 23 times forward earnings, per Bloomberg data.
But analysts argue the home-improvement stocks can still offer investors double-digit returns as DIY trends are likely to stick. BofA analysts argue that even the more richly valued Home Depot isn’t “particularly expensive” given the S&P 500’s increasingly lofty valuation.
“In the near-to-medium term, we continue to expect home improvement to comprise a larger share of consumers’ budgets while they are spending more time at home,” the BofA team writes. And although stimulus checks and enhanced unemployment benefits are beginning to wear off, analysts still see a bigger share of consumers’ budgets going to home improvement versus things like restaurants and travel.
In fact, in a survey, BofA found that homeowners said they were more likely to work from home (50%) than nonowners (34%), which “is likely to continue to fuel the wallet share shift toward home improvement in the coming months,” the analysts wrote.
There’s another trend afoot that may boost sales further for the two retailers: With mortgage rates at historic lows and an increasingly frothy homebuying market, the BofA team “continue to see upside to the renovation cycle.”
Indeed, with early evidence of an exodus from cities to suburbs amid shutdowns, new homebuyers may well be game to buy a fixer-upper. And while analysts note that “consumer spending on home improvement has experienced unprecedented strength relative to the more modest implications of the macro factors,” those factors tied to renovation activity are still encouraging, according to BofA.
Even if DIY sales taper off somewhat, BofA expects spending trends to “revert back to the longer-term trend of stronger growth among pros” as people feel more comfortable having contractors come inside their houses. That’s good news for Home Depot, which owes about 45% of its sales to professionals (that percentage is about 20% to 25% at Lowe’s). That means for investors, “It’s not too late to own [Home Depot].”
But how much higher could the two stocks surge from here?
Analysts at BofA just upgraded Home Depot to a “buy,” and they see the stock soaring another 16% from Tuesday’s close by year’s end. Lowe’s, meanwhile, could be pushing 11% upside this year, analysts at BofA suggest. (Both stocks boast heavy “buy” ratings among analysts broadly.)
While investors should understand that massive earnings beats likely won’t repeat themselves, the increasingly important role our homes are playing in our lives probably won’t be changing anytime soon. Mike Miedler, president and CEO of real estate behemoth Century 21, remarked to Fortune in July: “It’s now where you’re schooling your kids and working from. And it’s now your home gym—it’s everything to you.”


fortune--2020-08-19--Apple’s next trillion won’t come so easily

Apple has done it again. On Wednesday, just two years after becoming the first U.S. company to boast a trillion-dollar market valuation, it became the first to top $2 trillion. Getting to the next trillion may not be such a breeze.
With its shares up roughly 60% this year, Apple is among the Big Tech winners that have benefited from a “safety premium.” Investors have piled in to the iPhone maker’s shares as well as those of other technology darlings — including Amazon.com, Facebook and Google parent Alphabet — betting their business models, robust balance sheets and large cash balances would make them more resilient amid the economic fallout from the global Covid-19 pandemic.
Indeed, Apple did post impressive June quarter financial results last month on the back of strong sales, a perfectly timed lower-cost iPhone launch and a boost from government stimulus. But it faces a more uncertain road ahead. First, Apple’s valuation now embeds elevated future expectations. To illustrate, Wall Street’s current consensus for Apple’s fiscal 2020 sales ending this September is just 3% higher than its revenue two years ago. And yet, the stock price has more than doubled in that time frame, resulting in a heady valuation of about 33 times the next four quarters’ earnings.
Apple’s lofty valuation leaves little room for disappointment, but the success of its upcoming slate of products isn’t a sure thing. In contrast to the cheaper iPhone SE model that boosted its June quarter, the company is going to have to convince consumers to buy higher-priced $1,000 iPhones when it launches new 5G-enabled models this fall. And these more expensive phones may be a tough proposition with tens of millions of Americans facing job insecurity. Further, I’m still skeptical there will be new apps anytime soon that will need the faster fifth-generation wireless speeds, making phone upgrades less compelling. Finally, according to a Bloomberg News report last week, it doesn’t look like there will be much innovation coming from Apple on the services front either — just a new virtual fitness-class subscription and some modest subscription bundles.
On top of all this, Apple is facing increased regulatory scrutiny over its dominant position in the smartphone market. In June, the European Union announced it had opened two formal antitrust investigations into Apple, with one of the probes specifically looking into the requirement guidelines of its in-app purchase system. Last month, CEO Tim Cook also had to defend the company’s App Store policies and high fee structure before a landmark House antitrust hearing as well. Obviously, if either of these global regulators clamp down on Apple’s business practices, it could negatively impact its profitability.
There is no doubt Apple’s stunning ascent to $2 trillion is impressive. The climb to $3 trillion may be even more so, because it will be that much harder.