U.S. Defense Department reaffirms $10 billion cloud deal to Microsoft


The Force appears to be finally with Microsoft Corp. in its epic duel with Amazon.com Inc. for JEDI.

The Department of Defense on Friday said it has completed its re-evaluation of the hotly-contested $10 billion cloud-computing deal and reaffirmed its award to Microsoft. “Microsoft’s proposal continues to represent the best value to the government,” the DoD said in a statement.

“The JEDI Cloud contract is a firm-fixed-price, indefinite-delivery/indefinite-quantity contract that will make a full range of cloud computing services available to the DoD,” the statement continued. “While contract performance will not begin immediately due to the Preliminary Injunction Order issued by the Court of Federal Claims on February 13, 2020, DoD is eager to begin delivering this capability to our men and women in uniform.”

The announcement came shortly before the markets closed. In another brutal day for tech stocks Friday, shares of Microsoft
MSFT,
-1.40%

dropped 1.4% in trading; Amazon
AMZN,
-2.17%

shares declined 2.2%.

“We appreciate that after careful review, the DoD confirmed that we offered the right technology and the best value. We’re ready to get to work and make sure that those who serve our country have access to this much needed technology,” a Microsoft spokesperson told MarketWatch.

Amazon vowed to “protest this politically corrupted contract award” in a strongly worded blog post.

“[Amazon Web Services] remains deeply concerned that the JEDI contract award creates a dangerous precedent that threatens the integrity of the federal procurement system and the ability of our nation’s warfighters and civil servants to access the best possible technologies,” Amazon said. “Others have raised similar concerns around a growing trend where defense officials act based on a desire to please the President, rather than do what’s right.”

“This was illustrated by the refusal to cooperate with the DoD Inspector General, which sought to investigate allegations that the President interfered in the JEDI procurement in order to steer the award away from AWS,” Amazon continued. “Instead of cooperating, the White House exerted a ‘presidential communications privilege’ that resulted in senior DoD officials not answering questions about JEDI communications between the White House and DoD. This begs the question, what do they have to hide?”

The Defense Department’s Joint Enterprise Defense Infrastructure (JEDI) cloud-computing deal over 10 years is considered a plum government contract. The Pentagon initially awarded JEDI to Microsoft in October over the objections of co-finalist Amazon, which filed suit in protest in November. In April, a federal judge gave the Pentagon permission to reevaluate bids from Microsoft and Amazon.

Read more: Amazon files suit, challenging Pentagon’s $10 billion cloud contract to Microsoft

Anticipating a win, Microsoft has been signing similar deals with foreign governments for cloud-infrastructure services, according to a report by CNBC last month.

For years, Microsoft and co-finalist Amazon have engaged in behind-the-scenes lobbying and subterfuge over the deal as they battle for supremacy in the cloud market. And at times, the competition has taken on almost a cartoonish quality, evoking Mad magazine’s Spy vs. Spy comic strip.

Adding to the political intrigue is the future of TikTok, a video-sharing social networking service owned by ByteDance, a Beijing-based Internet company. Microsoft is the leading candidate to acquire TikTok, though Oracle Corp.
ORCL,
-2.39%

and Twitter Inc.
TWTR,
-4.22%

have also been mentioned as suitors. Alphabet Inc.’s
GOOGL,
-2.96%

GOOG,
-3.09%

Google was part of a group that explored a bid before dropping the idea, according to a Bloomberg report.

Microsoft is believed to be the favorite to acquire TikTok, published reports suggest, because it has been in close contact with the Trump administration. The software giant was initially awarded JEDI in October because of the president’s disdain for Amazon Chief Executive Jeff Bezos, who also owns the Trump-baiting Washington Post, say two people closely aligned to Amazon who are not authorized to speak publicly on the matter.

Amazon Web Services commanded 47% of the cloud infrastructure market in 2019, while Microsoft had 13%, according to estimates from market researcher IDC.

“This is a game changer for Microsoft as JEDI will have a ripple effect for the company’s cloud business for years to come, and speaks to a new chapter of Redmond winning in the cloud vs. Amazon in our opinion on the next $1 trillion of cloud spending expected to happen over the next decade,” Wedbush Securities analyst Daniel Ives said in a note late Friday.



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10 stocks positioned for an ‘abrupt’ rebound when normalcy finally returns — none of them are tech


The stock market continues to buck the steady flow of troubling headlines and gloomy metrics in a stark disconnect with the economy that’s been hotly debated on Wall Street.

Read:Jim Cramer urges investors not to be fooled by new highs in the stock market

And while it might feel rather toppy and precarious, Thomas Hayes, founder and chairman of Great Hill Capital, a new phase in the bull market could be on the way.

“It is a Dickensonian, ‘Tale of Two Markets’ when you look under the surface,” he wrote in a blog post. “While it may be true that the general indices could be due for a rest in coming weeks, such a rest may be accompanied by ‘under the surface’ rallies in laggard/unloved sectors.”

In other words, developments that might weigh on the major indexes by taking down leaders like Apple
AAPL,
+5.15%

, Amazon
AMZN,
-0.38%

, Facebook
FB,
-0.74%

and the other big-name tech players, would actually provide a tailwind for beaten down names poised for a rebound.

“So, ‘what do you think of the market?’ is less interesting of a question than, ‘what do you think about banks, commodities, emerging markets, defense stocks, tech, etc?’” Hayes said.

He used this chart to illustrate just how much relative appetite there is for tech lately:

Some names he mentioned that could come screaming back in a post-pandemic world include: Bank of America
BAC,
-0.47%

, JPMorgan Chase
JPM,
-0.05%

, Apache
APA,
-3.25%

, Murphy Oil
MUR,
-2.89%

, Boeing
BA,
-1.22%

, Lockheed Martin
LMT,
+0.43%

, MGM
MGM,
+1.58%

, Las Vegas Sands
LVS,
+2.23%

, Southwest Airlines
LUV,
+0.66%

and United Airlines
UAL,
-2.96%

, to name just a few with compelling set-ups.

“Announcement of a vaccine, or major breakthrough that pointed to near certainty and timeline on vaccine/treatment… would shift consensus FROM slower recovery/growth (lower rates) — which benefits tech — TO faster recovery/growth (slightly higher rates) — which benefits cyclicals,” he explained in his post. “When these groups turn, it will be abrupt.”

Banks, in particular, should see a big move higher, he added.

“Most people will be chasing banks after they are trading at a 50-100% premium to book versus buying now — in many cases — at a discount to book,” Hayes said. “How do we know? Because it happens coming out of every single historical recession. There is no recovery without Banks/Cyclicals leading out of the gate (early/high growth stages). No credit growth, no recovery.”

Overall, he remains bullish on what lies ahead, particularly with the aforementioned laggards.

“The catalyst will likely come from science at this point. Don’t bet against science,” he said. “I would not be surprised to see a bit of volatility/chop over the next few weeks. For now, keep on dancing while the music is playing, but keep your feet on the floor.”

For now, the stock market is rather quiet, with the Dow Jones Industrial Average
DJIA,
+0.68%

, tech-heavy Nasdaq Composite
COMP,
+0.41%

and S&P 500
SPX,
+0.34%

all hovering around the breakeven point in Thursday’s trading session.



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Postal Service issues have affected Netflix and Amazon


Issues at the U.S. Postal Service have created concerns about the November elections, but they have already caused headaches for some of the 2 million Netflix customers who still receive DVDs by mail, as well as Amazon.com Inc.’s fulfillment network.

Netflix
NFLX,
+2.75%

, which still mails rental DVDs in its iconic red envelopes in addition to offering its more popular streaming service, has experienced isolated delivery delays via the U.S. Postal Service, according to a person with knowledge of the company’s operations. The Postal Service remains an important strategic partner of Netflix, and the two operations are working closely to navigate the situation, which is not expected to have any material impact on customer service nor sales because of the isolated issues, the person said.

The Postal Service is in the process of removing 671 high-speed mail-sorting machines nationwide, which will eliminate 21.4 million items-per-hour’s worth of processing capability from the agency’s inventory. Relief could be on the way with Tuesday’s statement from Postmaster General Louis DeJoy that the mail service is ready to handle all mail-in ballots it receives in November, and that he is putting off drastic changes until after the election.

But with Democrats openly skeptical about that vow, as well as budget cuts to mail delivery, tech companies are taking nothing for granted.

Read more:Postmaster has no intention of restoring mail cuts, Pelosi says

“There has been a noticeable delay,” says Nitin Gupta, founder of One Hundred Feet Inc., a mapping geocode app developer that helps delivery systems get to their locations faster. He has seen a surge in use of his company’s app, which is used by the likes of FedEx Corp.
FDX,
+0.45%

, Uber Technologies Inc.
UBER,
+6.76%

and Verizon Communications Inc.
VZ,
-0.15%

, over the past few weeks.

Netflix’s DVD-by-mail service makes up a relatively small slice of the company’s overall business, but is still popular is rural areas, where access to high-speed internet and streaming services is limited. The DVD business reported revenue of $297 million in 2019 from more than 2 million subscribers, down from $366 million in 2018; as recently as 2012, Netflix reported more than $1 billion in DVD revenue. Netflix reported $20.16 billion in 2019 sales, so only 1.5% of that total comes from the DVD business.

The importance of mail delivery in rural areas has intensified the stakes for online retailers shipping products like prescription drugs, groceries, jewelry and DVDs, including Amazon
AMZN,
+1.13%
.

“It’s so critical to older people who are homebound during the pandemic, especially those reliant on medicines,” Shivaram Rajgopal, a professor at Columbia Business School, told MarketWatch.

Online pharmacy Honeybee Health Inc. says about 20% of patients who order delivery via first-class mail have experienced delays so far. “Neither mail-delivery nor brick-and-mortar is reliable for pharmacies,” says Cary Breese, CEO of NowRx Inc., a pharmacy based in Mountain View, Calif., that uses proprietary software, robotics, and artificial intelligence to provide free same-day delivery of prescription medication in the San Francisco Bay Area, Orange County (Calif.), and Phoenix.

Delivery of Amazon packages in the U.S. can be “hit or miss,” according to Helium 10, which is tracking Amazon sellers who rely on the postal service. A seller who ships 500 units via USPS weekly said that for the same area, package deliveries can take anywhere from a couple days to a week. Other businesses report some packages shipped by USPS have not been delivered in three weeks.

Any Postal Service issues could affect Amazon on a larger scale because the e-commerce giant ships billions of packages annually. However, the company has built redundancies into its delivery network — utilizing its own deliveries along with the Postal Service and private carriers — because its products are so geographically dispersed.

Amazon Logistics, the company’s in-house logistics operation, “more than doubled its share” of U.S. package volumes from about 20% in late 2018 and is now shipping at a rate of 2.5 billion per year. Morgan Stanley estimates United Parcel Service Inc.
UPS,
-0.49%

and FedEx have U.S. shipping volumes of 4.7 billion and 3 billion packages per year, respectively, and that Amazon is already delivering about half of its own packages in the U.S.

By 2022, Amazon’s U.S. package delivery volume could more than double, to 6.5 billion, according to the Morgan Stanley report. That would easily surpass UPS’s estimated 5 billion and FedEx’s 3.4 billion package volume.

Amazon Chief Executive Jeff Bezos, who as owner of the Washington Post has been publicly targeted for vitriol by President Donald Trump, has put into place a vast network of delivery partners to avoid bottlenecks. Besides its ubiquitous vans that have become as common in neighborhoods as mail carriers, Amazon has agreements with the USPS and UPS to fulfill customer service.

“We regularly balance capacity across our extensive network of carrier partners to ensure we are able to meet our delivery promises,” an Amazon spokeswoman told MarketWatch in a phone interview. “While we don’t comment on our agreements with carrier partners, we continue to look at all of our options to ensure we’re providing the best possible service to customers.”

That hasn’t always translated into timely delivery for small businesses that partner with Amazon. Sharon Buchalter, CEO of Products on the Go, an e-commerce seller of baby products and other goods, said her company has lost sales in recent weeks because Amazon has been late in processing and delivering some orders, prompting customers to ask Amazon for refunds or cancellations.

“There’s really nothing I can do if Amazon runs late,” Buchalter told MarketWatch. “This [slower mail] and the economic slowdown caused by the pandemic have impacted sales a bit.”



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Companies are weighing stock splits, after Tesla and Apple’s announcements, expert says


After Tesla and Apple announced plans to split their shares within weeks of each another, there has been a growing buzz that more companies with triple and quadruple-digit share prices will follow in their footsteps.

“Everybody’s talking about it,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told MarketWatch in an interview on Thursday.

“I’m getting requests from companies looking for raw data… asking, ‘Is there a reason I should split [my shares]?’ he said.

Silverblatt said he thought boards of companies might indeed follow Tesla and Apple’s lead at some point and split their shares in an effort to appeal to a wider retail audience, even if doing so is almost an entirely cosmetic exercise by a company and one that could be expensive.

“Will, there be others that split? I have to say yes. Those [companies] can’t be the only ones,” he said, referring to Apple and Tesla.

Apple
AAPL,
+1.77%

on July 30 announced a 4-for-1 stock split that will take effect on Aug. 31. At the time of its announcement, made after the close of regular trade, shares of the iPhone maker had closed at $384.76. They have gained nearly 20% since then to $460, as of Thursday.

Earlier this week, Tesla
TSLA,
+4.26%

said it would complete a 5-for-1 stock split by Aug. 31, that also sent the electric-vehicle maker’s shares zooming higher.

Stock splits were once a common occurrence on Wall Street, as companies attempted to make their share prices more enticing to average investors.

Back in the late 1990s and early 2000s, amid the dot-com boom, stock splits were all the rage (see attached chart).


Ally Invest, Bloomberg, S&P

But such divisions, of companies creating more shares, are a rarity nowadays.

Indeed, Tesla and Apple are the only stock splits thus far in 2020, even though the average share price among publicly traded companies is $149.32, compared with an average share price of $51.08 in 1997 when there were 102 stock splits, marking the greatest number of splits over the past three decades, S&P Dow Jones Indices data show .


S&P Dow Jones Indices.

The Wall Street Journal in a 2017 article titled the “Split Decision: The Pros and Cons of Splitting Shares,” wrote that beyond appealing to retail investors, making a stock appear more liquid and less overvalued have been among some of the reasons that companies had opted to enact splits.

MarketWatch columnist Mark Hulbert back during Apple’s last announcement of a stock split in 2014 said that stock splits could also be read as a vote of confidence by a company’s management.

“Of course, the stock split itself is simply a cosmetic accounting thing that brings the stock price down. The reason that it’s bullish is that it’s a signal of something that is good news on the fundamental side and that good news is confidence on the part of management that their stock price will not only stay at its current level but keep growing and for that reason they need to split it in order bring the stock price back to a sweet spot,” he explained.

Talk of stock splits now come as mom-and-pop investors find themselves in a veritable golden age of trading, where commissions are at or near $0 and many brokerage platforms offer fractional share ownership of stocks, making purchasing small stakes in companies attainable and relatively low cost.

On top of that, a recent spate of outperformance by retail investors, who have made aggressive and thus far successful bets on the comeback of a number of coronavirus-stricken industries, compared against professionals, has cast a spotlight on investing by a new, young cohort of stock buyers.

That backdrop would presumably weaken the case for stock splits to drive retail ownership but proponents of the move say that fostering an environment that is pro-retail may be a long-term good for the stock market overall and companies.

“Remember, the size of the price tag matters with this [young investing] crowd” and “you want this no-commission paying crowd in your stock,” CNBC’s Jim Cramer said during “Mad Money” on Wednesday.

“This new cohort of investors, the ones who love low-dollar amount stocks, will start buying and holding these best-of-breed names rather than the darned penny stocks,” he said.

Lindsey Bell, chief investment strategist at Ally Invest, wrote last week, after Apple’s announcement that it’s “tough to say if this is the start of a new stock split fad.”

She noted only Netflix
NFLX,
+1.23%

followed Apple’s lead in 2014 when it completed a 7-for-1 stock split in July of 2015.

That said, Bell says that “a little support from companies with expensive stocks could be a big win for those wanting a bite of the Apple (and other big tech/high priced stocks).”

Silverblatt said that there are a number of high-priced companies who might fit the profile of those interested in slashing their share price by virtue of a split.

His data show that there are 63 companies with a share price at or above $250, up from 44, as of Aug 12, 14 companies with stocks at $500 and over, up from 10 at the end of 2019; nine trading at or above $750 a share, up from six, and seven companies boasting a share price of $1,000 or greater, two more than the end of last year, and two issues that carry a price tag of $2,000 a share or better, when there were none at the end of 2019.

CNBC’s Cramer said that he favors a stock split for Amazon.com Inc.
AMZN,
-0.03%
,
Google parent Alphabet Inc
GOOGL,
+0.62%
.
, Chipotle Mexican Grill
CMG,
+2.93%
,
Netflix, Nvidia
NVDA,
+0.02%
,
Adobe
ADBE,
+1.04%
,
Costco Wholesale
COST,
-0.31%
,
Home Depot
HD,
+0.02%
,
Facebook Inc
FB,
+0.54%
.
and Microsoft Corp.
MSFT,
-0.23%

Amazon, whose shares closed at around $3,161 on Thursday, hasn’t split its stock since 1999.

A Wall Street Journal article recently said administrative costs may serve as an additional deterrent to companies considering a stock split, citing an academic paper that pegged the administrative cost of a stock split at around $800,000 for a large company.

That cost for some megalith companies is relatively tiny, particularly if management thinks the long-term value of a split outweighs the expense.

Hulbert, citing a study authored by David Ikenberry, a finance professor at the University of Colorado, says that the average stock undergoing a two-for-one stock split beat the market by 7.9% over the year after the announcement of the split — and by 12.2% over the three years after that announcement.

That said, he acknowledged recently that that split-effect has weakened in recent years.

But it also bears noting that buying a company solely because of a planned split isn’t likely to be a good long-term investing strategy, in any event.



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Amazon finally wins approval from regulator to gobble up minority stake in Deliveroo


E-commerce giant Amazon
AMZN,
+0.86%

on Tuesday won approval from the U.K.’s competition watchdog to take a stake in U.K.-based food delivery platform Deliveroo. 

The decision by the Competition and Markets Authority (CMA) ends its 15-month investigation into Amazon’s investment in Deliveroo, which came as part of a $575 million fundraising that saw others invest in 2019.

Read: Amazon ends own restaurant-delivery service as Grubhub and Uber Eats competition intensifies

The investigation focused on whether Amazon’s 16% Deliveroo stake would harm competition, and whether this would reduce the chances of it entering the market as a competitor itself.

“[Amazon’s] status as a strategic investor is likely to increase the weight Amazon’s views will carry with Deliveroo’s management and other investors and, in turn, increase its ability to influence Deliveroo’s commercial strategy,” it said in a submission to the CMA.

It reviewed submissions from rivals including Just Eat Takeaway,
TKWY,
+1.44%

which argued that the investment would make Amazon less likely to enter the U.K. fast food delivery market and that it would be able to influence Deliveroo’s strategy in a way that harms competition.

In a December note, investment bank Jefferies said the investigation “smacks of ‘not on my watch’ interventionism,” attributing the case to negative political sentiment toward large U.S. internet companies in 2019.

But Andrea Gomes da Silva, the CMA’s executive director, said at the time: “If the deal were to proceed in its current form, there’s a real risk that it could leave customers, restaurants and grocers facing higher prices and lower quality services as these markets develop.”

“This is because the significant competition which could otherwise exist between Amazon and Deliveroo would be reduced,” he added.

During the case the CMA also considered whether without the investment Deliveroo would collapse under the financial strain caused by Covid-19, provisionally clearing the investment in April.

It continued investigating and again provisionally cleared the investment in June after noting a “considerable improvement” in Deliveroo’s financial position. 

It said the investment should go ahead as it wouldn’t damage competition in either restaurant delivery or convenience grocery delivery, though it continued to ask for views and assess evidence on the provisional findings.

But Tuesday’s decision now formally clears the way for Amazon and the investment will go ahead. 

Read: Amazon targets Uber Eats with huge Deliveroo investment

Stuart McIntosh, who chaired the inquiry, said a further investigation could be triggered if Amazon sought to increase its control of Deliveroo. 



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