Trump’s ban against WeChat owner Tencent could have huge implications for U.S. companies


Did President Donald Trump just blow up the U.S. videogame industry?

That was the question on a lot of minds after Trump issued executive orders Thursday night banning “transactions” with the Chinese owners of the TikTok and WeChat apps starting Sept. 20. While the move against TikTok’s owner — Beijing-based Bytedance — was not a huge surprise, action against WeChat’s owner — Shenzhen-based tech giant Tencent Holdings Inc. — was.

That’s because Tencent is one of the world’s largest and most valuable companies, with ownership stakes in a number of U.S. videogame companies, including Riot Games, which makes “League of Legends”; Epic Games, which makes “Fortnite”; and Activision Blizzard
ATVI,
+2.98%

, which makes “World of Warcraft.”

Tencent also has significant stakes in Tesla Inc.
TSLA,
+0.30%

and Snap Inc.
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-1.61%

, the maker of Snapchat, and the Chinese company has streaming deals in place with the NBA, the NFL and Major League Baseball. The order could potentially also affect Apple Inc.
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+3.48%

and Alphabet’s
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+1.74%

GOOG,
+1.79%

Google app stores, which feature Tencent-owned apps.

The executive order took aim directly at WeChat, which has more than 1 billion users worldwide, and whose “data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information,” the order said.

But the wording of the order made it unclear if the ban affected just WeChat or all of Tencent’s holdings, saying: “any transaction that is related to WeChat by any person, or with respect to any property, subject to the jurisdiction of the United States, with Tencent Holdings Ltd. … Shenzhen, China, or any subsidiary of that entity.”

Either way, the order is likely to be challenged in court.

Tencent shares
700,
-4.41%

in Hong Kong sank in Friday trading after the announcement. The news broke after the extended trading session in the U.S. closed, but traders will likely keep a close eye on how shares of Tesla, Activision Blizzard and others fare in the morning.

Banning all business by U.S. companies with WeChat’s parent — if that is the case — could prove to have much farther-reaching effects than Trump may have anticipated.

“Likely he had no idea,” tech journalist Kara Swisher tweeted Thursday night.

Many on social media Thursday night expressed surprise and alarm:





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Jeff Bezos, Elon Musk would pay tens of billions each under this whopping one-time tax proposal


Sen. Bernie Sanders


AFP/Getty Images

A new bill co-sponsored by Sen. Bernie Sanders would impose a one-time windfall tax on the wealth that billionaires have accumulated during the coronavirus pandemic, using the proceeds to pay for free out-of-pocket health-care costs for all Americans for a year.

The “Make Billionaires Pay Act,” introduced Thursday by Sanders and Democratic Sens. Ed Markey of Massachusetts and Kirsten Gillibrand of New York, would slap a 60% tax on the roughly $731.8 billion that the 467 richest people in America have accumulated since March 18 — a period in which more than 50 million Americans have applied for jobless aid, 5.4 million lost their health insurance and the nation’s economy has been thrown into shambles.

Proceeds from the one-time tax would allow Medicare to cover all out-of-pocket health-care costs for every American, including prescription drugs, for one year, the senators said.

In a statement, Sanders, the Vermont independent, said the bill would “tax the obscene wealth gains billionaires have made during this extraordinary crisis.”

 “At a time of enormous economic pain and suffering, we have a fundamental choice to make,” Sanders said. “We can continue to allow the very rich to get much richer while everyone else gets poorer and poorer. Or we can tax the winnings a handful of billionaires made during the pandemic to improve the health and well-being of tens of millions of Americans.”

Also read: This ‘dire’ economic situation ‘deserves to be called a depression — a pandemic depression’

According to the statement, after the tax, the richest 0.001% of Americans would still be left with more than $310 billion in collective wealth gains this year.

Some big names were singled out:

— Amazon.com Inc.
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+0.62%

CEO Jeff Bezos, the richest individual on the planet and whose wealth has risen 63% during the pandemic to more than $190 billion, would pay a one-time tax of $42.8 billion.

— Tesla Inc.
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+0.30%

CEO Elon Musk, whose wealth has nearly tripled as Tesla stock has skyrocketed in recent months, would pay $27.5 million.

— Facebook Inc.
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+6.48%

CEO Mark Zuckerberg, whose wealth has risen by nearly $40 billion during the pandemic, would pay $22.8 billion.

— The Walton family, heirs to the Walmart Inc.
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-0.35%

fortune whose wealth has grown by $21 billion, would pay $12.9 billion.

“Incredibly,” the senators said in a statement, “these billionaires currently pay a lower effective tax rate than teachers or truck drivers.”

No one with a net worth of less than $1 billion would pay the tax, they said.

“Requiring billionaires to pay their fair share will help support workers and families dealing with job losses, food insecurity, housing instability and health care,” Gillibrand said. “Not only is this a common-sense proposal, but it’s a moral one and Congress should be doing all we can to assist Americans struggling right now.” 

Taxing the ultra-rich has become a popular cry for Democrats following the Trump tax cuts of 2017. Last year, Sen. Elizabeth Warren, D.-Mass., proposed a tax on “ultra millionaires” as part of her presidential campaign.

It should be noted that, as MarketWatch reported earlier this year, starting the clock at March 18 lacks some context, as investors started worrying about the pandemic in February, leading to the stock market’s temporary but steep tumble.

For the year, the Dow Jones Industrial Average
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+0.68%

is down 4%, while the S&P 500
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+0.64%

is up nearly 4% and the Nasdaq Composite
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+0.99%

has gained 24%.



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Uber, Lyft drivers in limbo as judge hears arguments in case brought by California


Uber and Lyft on Thursday defended against a lawsuit, brought by California and San Francisco, Los Angeles and San Diego, accusing the companies of not complying with a law to classify their drivers as employees.


Getty Images

A judge said Thursday he would probably decide “within a matter of days, not weeks,” whether he will order Uber Technologies Inc. and Lyft Inc. to immediately comply with a California law that classifies their drivers as employees, in a closely watched case that could deal a blow to the business models of the ride-hailing giants.

The pending decision by Judge Ethan Schulman of the San Francisco County Superior Court on the lawsuit by California’s attorney general and the city attorneys of San Francisco, Los Angeles and San Diego — who are seeking an immediate injunction ordering the two companies to reclassify their drivers — could have wide-reaching repercussions on the gig economy.

Schulman mentioned a few times that he was struggling to balance the harms that an immediate injunction could bring, especially after Lyft
LYFT,
+4.69%

attorney Rohit Singla characterized it as a “dramatic” and unprecedented action that would be burdensome to the companies and could lead to hundreds of thousands of drivers losing “income opportunities.”

“I feel a little bit like I’m being asked to jump into a body of water without really knowing how deep it is, how cold the water is and what’s going to happen when I get in,” the judge said during the nearly three-hour-long hearing in San Francisco, which was conducted virtually.

AB 5, which became law on Jan. 1, codified a 2018 California Supreme Court ruling. The ruling, known as Dynamex, adopted an “ABC test” that says workers can be considered contractors only if they control their work; if their duties fall outside the scope of a company’s normal business; and if they are “engaged in an independently established trade, occupation or business.”

Uber attorney Theane Evangelis argued that some changes the company has implemented since AB 5 went into effect, including allowing drivers to set their own rates in a limited fashion, ensure that the company can meet the ABC test.

When AB 5 passed, it was widely seen as a threat to the gig economy’s business model, which relies on independent contractors who are not provided guaranteed minimum wages or benefits.

The drivers’ lack of benefits became even more pronounced during the coronavirus crisis, as demand for rides plunged amid widespread lockdowns. Drivers did not have paid time off or employer-backed health care amid a pandemic. Many sought unemployment benefits.

“What we think is dramatic is that these workers are being systematically denied a wide range of employee protections and being harmed by these practices,” said Matthew Goldberg, deputy city attorney for the San Francisco City Attorney’s office.

In their lawsuit, the state attorney general and city attorneys list as violations the companies’ failure to pay unemployment insurance taxes and other taxes toward the state’s social insurance programs.

Goldberg pointed out Thursday that the two companies have more than $11 billion of cash reserves combined.

Uber
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+4.54%

and Lyft argued that they should not have to comply with AB 5 until after California residents vote on Proposition 22, an initiative the companies backed that will be on the state ballot in November. It seeks to define ride-hailing and delivery drivers as independent contractors and establish specific labor and wage regulations for app-based companies.

The companies often say they provide drivers with flexibility, and attorneys for both Uber and Lyft made that same argument Thursday.

But San Francisco City Attorney Dennis Herrera said in a statement after the hearing that “There is no rule that prevents these drivers from continuing to have all of the flexibility they currently enjoy. Being properly classified as an employee doesn’t change that.”  

Uber declined comment Thursday. Lyft did not immediately respond to a request for comment.

Uber and Lyft are also facing other lawsuits over worker classification, including ones filed this week by California’s labor commissioner accusing the two ride-hailing giants of wage theft “by willfully misclassifying drivers as independent contractors instead of employees.” The lawsuits filed Wednesday in Alameda County Superior Court against each company by Lilia Garcia-Brower seek back wages, damages and penalties, including for failure to provide minimum wages, rest breaks, overtime pay and more.

According to Nicole Moore, a Los Angeles-based organizer with Rideshare Drivers United, more than 5,000 drivers have filed wage claims with the state. “You can’t really overlook claims of $1.35 billion,” she said in an interview. In a letter to drivers dated Aug. 5, the California Division of Labor Standards Enforcement said those claims would be dismissed by the state because it is now suing the companies and seeking those wages on drivers’ behalf.

See: Uber’s delivery business tops core ride-hailing as pandemic rocks earnings

Thursday’s hearing came on the same day Uber reported that it lost $2 billion in the second quarter as rides plunged 67% compared with the year-ago quarter. Lyft is scheduled to report its results next week.



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A ‘golden cross’ has formed in the Dow Jones Industrial Average


A golden cross formed in the Dow Jones Industrial Average
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+0.68%
,
more than five months after a bearish chart pattern materialized in the aftermath of the carnage wrought by the COVID-19 pandemic.

A golden cross occurs when the 50-day moving average for an asset price trades above the 200-day MA, while a so-called death cross, comparatively, is when the 50-day falls below the long-term average.

On Thursday, the Dow’s 50-day stood at 26,251.34, and the 200-day moving average was at 26,229.91, according to FactSet data, marking the first time the short-time moving average has punched up above the longer-term average since March 20, and forming a chart pattern that is widely regarded as signaling that a trend higher for stocks appears to be at hand.

As MarketWatch’s Tomi Kilgore notes, crosses, overall, aren’t necessarily good market-timing indicators, however, as they are well telegraphed, but they can help put an asset’s move into perspective.

The last golden cross for the Dow occurred on March 19, 2019 and led to a steady rally for stocks until the death cross that formed nearly exactly year later in the wake of the pandemic.

Read: MarketWatch’s snapshot of the market for Thursday

The golden cross for the Dow comes about a month after a similar cross occurred in the S&P 500 index
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+0.64%
.

Despite continued weakness in the economy, with the spread of the COVID-19 epidemic in many parts of the U.S. and the world, stocks have still climbed, boosted by government spending and Federal Reserve support for markets.

Technology names have been at the vanguard of the rally from the lows that were put in U.S. markets back in March as they benefited from work-from-home orders while businesses were shut down. However, the perception that technology-related companies are better situated to prosper in the aftermath also has helped the tech-heavy Nasdaq Composite Index
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+0.99%

to register 32 record closes so far in 2020 while the S&P 500 and Dow have lagged behind.

The Dow, made up of 30 companies, has the lowest concentration of so-called technology or technology related companies and is a price-weighted gauge so its performance has been slightly weaker than those for the S&P 500 and the Nasdaq.

More than half of the Nasdaq comprises tech-related companies while more than a quarter of the S&P 500 consists of tech names.

Only a fifth of the Dow is tech, including Microsoft Corp
MSFT,
+1.60%
.
Apple
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+3.48%
,
Cisco Systems
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+0.93%
,
Visa
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+1.36%
,
International Business Machines
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+0.53%

and Intel Corp.
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-0.04%

Those behemoth companies have helped the overall market mount a recovery from the coronavirus-induced lows, and as a result tech-leaning indexes have risen by the most.

The Nasdaq has surged by nearly 62% since its March 23 low and the S&P 500 has climbed almost 50%.

The Dow, isn’t far behind, and has gained 47% since its late-March nadir.

That said, the golden cross formation may suggest to some that the 124-year-old blue-chip index isn’t far from notching its first record since Feb. 12. The Dow stands about 7.3% from its all-time high, while the S&P 500 is about 1.1% from its Feb. 19 record closing high.

To be sure, a rejection of the golden cross isn’t unprecedented. A golden cross formed in January of 2016 but the Dow fell back into a death cross before carving out a new high, according to Dow Jones Market Data.



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Fastly stock drops 20% as analysts weigh in on how TikTok may affect the edge-computing platform’s growth


Fastly Inc. shares pulled back from their recent lofty heights Thursday, as analysts weighed in on how the popular video-sharing platform TikTok will affect the edge-computing platform’s growth as more businesses migrate functions to the cloud.

Fastly
FSLY,
-16.24%

shares fell as much as 21% Thursday, and were last down 17% at $90.40, on volume of more than 23 million shares, compared with a 52-week average daily volume of 3.4 million shares.

Late Wednesday, Fastly reported quarterly results and an outlook that topped Wall Street estimates, but revealed that TikTok was the company’s single largest customer, accounting for 12% of revenue. Fastly is a so-called “edge-based” cloud-computing platform that allows developers to get the best possible performance from their applications.

TikTok has come under fire from President Donald Trump, who has suggested banning the service as a national-security risk because of ownership by the Chinese company ByteDance. Trump has also suggested that the U.S. Treasury should get a cut of the purchase price if TikTok is acquired by Microsoft Corp.
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+0.90%
.
Also of note, organized TikTok users were credited with helping to wildly inflate attendance expectations of Trump’s ill-attended Tulsa, Oklahoma rally back in June.

Even with Thursday’s drop, Fastly shares have soared 324% from their opening on the New York Stock Exchange in May 2019, with shares skyrocketing 294% in the past three months. In comparison, the tech-heavy Nasdaq Composite Index
COMP,
+0.64%

has gained 25% in the past three months, and the S&P 500 index
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+0.36%

has risen 17%.

Oppenheimer analyst Timothy Horan downgraded Fastly to perform from outperform and said TikTok was a “major risk” to the elevated stock price.

“A TikTok ban in the U.S. could prevent FSLY from hitting 3Q/FY20 guidance,” Horan said. “TikTok is FSLY’s largest customer and is likely ~15% of revenues in 1H20, with about half that generated in the U.S. We do think a TikTok/ MSFT deal is far from certain, and long-term MSFT could move TikTok delivery on its own edge infrastructure.”

For the third quarter, Fastly forecast an adjusted loss of a penny a share to net income of a penny a share on revenue of $73.5 million to $75.5 million. Analysts, who had previously forecast a loss of 4 cents a share on revenue of $72 million on average, now expect earnings of a penny a share on revenue of $74.8 million.

Read:Facebook’s TikTok rival comes as Chinese company’s future is in limbo

William Blair analyst Jonathan Ho, who has an outperform rating on the stock, said weakness could make a good entry point given its recent performance, even with a possible U.S. ban of TikTok.

“Third-quarter guidance calls for sequentially flat revenue growth, which appears conservative but also reflects some unknowns around TikTok and continued COVID-19-driven demand as global economies reopen,” Ho said. “Fastly remains a stock we would want to own given broader themes around digital transformation and edge compute, and we would take advantage of weakness in the shares.”

Raymond James analyst Robert Majek, who rates the stock as market perform, said TikTok “remains a double-edged sword” for Fastly.

Majek said one “area of perceived softness” in Fastly’s results was slowing growth in its large enterprise customers, which could reflect a COVID-19 related pullback in spending, but noted the addition of a very significant customer.

“We note that the gross adds included one very meaningful customer, Amazon
AMZN,
+0.55%
,
which we believe is using Fastly to deliver ~90% of its image content across the 20 global cities we tested,” Majek said.

Stifel analyst Brad Reback, who has a buy rating and hiked his price target to $98 from $30, noted that while 12% of Fastly’s revenue came from TikTok, half of that came from outside of the U.S., and that digital transformation trends, prompted by COVID-19 adaptation, would drive more organizations to “re-platform their applications” using Fastly.

“The banning of the app in the US would create short-term uncertainty around Fastly’s revenue contribution from ByteDance; however, management believes it has the ability to backfill the majority of this potentially lost traffic,” Reback said.

Of the 11 analysts who cover Fastly, five have buy or overweight ratings, four have hold ratings, and two have sell ratings, and an average target price of $93.25, according to FactSet data.



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