Corporate bond issuance off to a bang in September


Corporate borrowing is off to the races.


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Companies wasted no time going back to the borrowing trough after the long Labor Day weekend.

U.S. investment-grade companies already borrowed $46.7 billion in the bond market this month through Wednesday, a single day that accounted for $21.3 billion of the total, according to BofA Global Research.

Notable among the week’s deluge was a debut $1 billion green bond issued by JP Morgan Chase & Co.
JPM,
-1.03%
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putting it alongside other major corporations from Google parent Alphabet
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-1.60%

GOOGL,
-1.36%

to Visa Inc.
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-1.23%
,
which in recent weeks have raced to borrow with do-good purposes.

September often can be a busy month for corporate borrowing, as companies focus on the remaining weeks left in the year to lock in optimal financing — meaning before Thanksgiving, when the typical year-end lull begins to take hold.

Here’s a look at how September bond issuance stacked up over the past five years:

The pandemic has made this year anything but typical, including with a record $1.5 trillion already borrowed by investment-grade companies so far in 2020 to help fund their operations through the year’s end.

Many highly rated businesses borrowed fresh mounds of debt at lower rates than ever before, even though they are now carrying record levels of leverage.

Read: U.S. corporate debt soars to record $10.5 trillion

However, with the Federal Reserve’s unprecedented pandemic support, there’s little reason to think big businesses have had enough of today’s ultra-low borrowing rates.

“It’s a very busy September,” said Wendy Wyatt, a portfolio manager at DuPont Capital, of investment-grade bond supply. While she doesn’t expect to see the same eye-popping borrowing boom as in March, April and May, when companies were panic-borrowing, Wyatt has been encouraged by the recent trend where bond issuance has been used by more companies to kick their debts down the road or to repay near-term maturities.

“It’s not hideous. It’s a smart business decision,” she said of the debt replacement or reduction strategy, even through she’s also keeping an eye on companies that look to take on more debt to fund mergers and acquisitions.

“M&A has picked up and you’ve got to be cautious about that,” she said.

Related: Coronavirus slashes deal-making globally: What to expect next

To be sure, some of the big winners of the pandemic debt boom have been investment banks hired to arrange the funding.

Revenue at investment banks jumped 32% to $101.6 billion in the year’s first half from a year prior, its highest level since the first half of 2012, according to Coalition, a global analytics company.

What’s more, Coalition expects the year’s swift uptick in investment banking business, particularly in fixed-income, currencies and commodities, to combine with further head-count reductions at banks and produce an 12% return on equity for institutions it tracks in its index.

That would mark a significant reversal of a trend where ROE for banks in the index have declined each year since 2016, when it hit 9.5%.



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When the Nasdaq has had as ugly a start to September as it just had, it has always finished the month lower


Technology stocks got wrecked Tuesday on Wall Street, and that bodes ill for the rest of the month, according to Dow Jones Market Data.

The decline in the Nasdaq Composite Index
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-4.11%

pushed the tech-heavy index into a correction, commonly defined as a drop of at least 10%, but no more than 20%, from a recent peak, and reaffirmed the bearish view that tech-related stocks had mounted too brisk a run-up in the aftermath of the worst public-health crisis in a century.

Tuesday’s bitter slump, resulting in a 4.1% drop for the Nasdaq Composite, marked the worst start to the index in September, a notoriously weak month for U.S. equities, on record. The index has sunk 10% over the past three sessions, following a record close Sept. 2.

And the stats for the outlook for the market appear to show that it’s tough for the index to recover from the likes of the downturn it just faced.

When the Nasdaq has previously tumbled by at least 4% in the first five days of September, it has ended lower. The Nasdaq has booked five Septembers since 1974 (not including Tuesday’s drop) in which it registered declines of at least 4%, and in four of those five declines — 1974, 2000, 2001 and 2008 — the equity benchmark added to its losses (see attached chart):


Dow Jones Market Data

To be sure, that’ s hardly a significant sample size, but it’s still a stat worth considering as the market looks to right itself following three withering days for formerly high-flying tech stocks.

The moves by the Nasdaq Composite may also have broader implications for the market as a whole, since buzzy tech-related names like Tesla Inc.
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-21.06%
,
Apple Inc.
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-6.72%
,
Amazon.com Inc.
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-4.39%
,
Facebook Inc.
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-4.09%
,
Google parent Alphabet Inc.
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-3.68%

GOOGL,
-3.64%
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and Netflix Inc.
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which have represented the handful of mega-capitalization companies that have all helped to power this resurgence in equities in the throes of a pandemic, all are sitting on multiday losing streaks.

Although bullish investors hope that the declines in the index helped to clear away some of the frothiness that had accumulated since the March lows for the stock market, there are some concerns that the tech wreckage could portend longer-term bad news for the Dow Jones Industrial Average
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and the S&P 500 index
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,
which also skidded by more than 2% on Tuesday.



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Facing immense pressure, Facebook had no choice but to ban new political ads week before election


Facebook Inc.’s first action to limit political advertising in the U.S. with a ban of news ads in the week preceding the Nov. 3 elections announced Thursday comes amid unrelenting criticism that its platform fuels misinformation and is a haven for far-right groups.

Chief Executive Mark Zuckerberg, who in particular has taken heat for political manipulation of the social-media company’s platform during the 2016 U.S. elections, made the announcement early Thursday in another attempt to tamp down meddling.

“It’s important that campaigns can run ‘get out the vote campaigns’, and I generally believe the best antidote to bad speech is more speech, but in the final days of an election there may not be enough time to contest new claims,” Zuckerberg said.

The specter of voter manipulation has weighed heavily on Facebook. The company is running what it calls the largest voting information campaign in American history, with a goal of helping 4 million people to register and vote. Last month, Facebook launched a Voting Information Center to help users with accurate, easy-to-find information about voting wherever they live. The addendum will link to a new voter information hub similar to one about COVID-19 that Facebook says has been seen by billions of people globally.

See also: Facebook hardens digital defense for misinformation ahead of elections

However, Facebook’s latest election-integrity move was immediately met with skepticism from privacy groups that argue Facebook should be fact-checking and removing political ads, in addition to intentionally deceptive posts, that proliferate across its platform that includes Instagram, WhatsApp, and Messenger. Some openly questioned why the ban didn’t extend longer, and if money trumped principle.

“Nothing more than a PR stunt designed to distract from the fact that Facebook is the single biggest vector of dangerous misinformation and voter suppression campaigns in the United States. It falls well short of even being a half measure,” Shaunna Thomas, co-founder and executive director of national women’s organization UltraViolet, said in a statement.

Others were more positive about the new policy. “It’s a strange feeling to read something by Mark Zuckerberg and say, ‘Yup, yup, yup,’” said Claire Wardle, the U.S. director of First Draft, a nonprofit group that combats misinformation. “I’m pretty excited by it.”

Election interference remains top of mind at Facebook, which is as concerned about vote counting in the days and perhaps weeks following Nov. 3. Officials at Facebook, Twitter Inc.
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and elsewhere have hinted there could be attempts by politically motivated groups to question the legitimacy of votes, including mail-in ballots.

Read more: Facebook and Twitter are concerned about what is going to happen after Election Day

Facebook, which is under investigation for anti-competitive business practices by the Federal Trade Commission, faces immense political pressure for the torrent of information it fire-hoses to its 2.7 billion monthly active users.

Despite the relatively civil relationship between Zuckerberg and President Donald J. Trump, who has nearly 31 million followers on the social network, it might only take a mild disciplinary action by Facebook over Trump’s profile feed to raise his ire and prompt regulatory punishment, Anurag Chandra, a partner at venture-capital firm Fort Ross Ventures, told MarketWatch.

The White House said as much in a terse statement Thursday.

“In the last seven days of the most important election in our history, President Trump will be banned from defending himself on the largest platform in America,” Samantha Zager, the campaign’s deputy national press secretary, said in a statement. “When millions of voters will be making their decisions, the President will be silenced by the Silicon Valley Mafia, who will at the same time allow corporate media to run their biased ads to swing voters in key states.”

The campaign of Trump’s Democratic opponent, former Vice President Joseph R. Biden Jr., had no immediate comment.

Facebook
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-2.88%

shares declined 3.8% in trading Thursday in a as tech stocks were routed in a selloff.



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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
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dropped 1.4% in trading; Amazon
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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.
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and Twitter Inc.
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-4.22%

have also been mentioned as suitors. Alphabet Inc.’s
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-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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What can Zoom do for a sequel to one of the most astounding earnings blowouts of all time?


Zoom Video Communications Inc. enjoyed one of the biggest blowout earnings reports in history in early June, as the COVID-19 pandemic made the company’s name synonymous with videoconferencing and attracted millions of new users to its service.

Zoom’s
ZM,
+1.55%

profit roared more than ten times higher, revenue exploded with 169% growth, and the company doubled its expectations for full-year sales. An analyst on Zoom’s conference call called the quarter perhaps the greatest in enterprise-software history, and Zoom shares — which many believed had run too far heading into that report — have gained more than 80% in the three months since.

For more: Zoom’s astounding quarter shows it expects to be a force even after workers go back to the office

There is only one problem with that type of performance: How do you follow it up ? On Wall Street, an outstanding performance only increases expectations for it to repeat when Zoom reports second-quarter earnings Monday afternoon.

Morgan Stanley analysts reported last week that the “buy-side” expects Zoom to beat consensus estimates by about 30%, even after the company’s forecast for about a half-billion dollars in revenue for the quarter sent analysts’ estimates soaring. And even Morgan Stanley analysts, who are not as bullish on Zoom as other banks with an equal-weight rating on the stock, believe Zoom will meet those expectations — at least for now.

“In general, we think that buy-side expectations for FQ2 (~30% beat) can be achieved and that the company will have flexibility to guide down slightly or flat sequentially, creating little risk heading into the quarter,” the analysts wrote in an Aug. 20 note in which they increased their price target on Zoom to $240 from $190. “However, with buy-side expectations calling for significant continuation of growth trajectory into FY22 and FY23, we are aware that there could be some valuation contraction as sequential growth slows in the back half.”

Analysts cited strong growth in app downloads and users as reasons for yet another strong performance, as well as users signing up for paid plans after getting their feet wet with a free account earlier in the pandemic.

“App downloads [and monthly active users] remain strong and we show a path to F2Q21 revenue well ahead of consensus expectations (and likely buy side expectations as well) serving as a near-term catalyst for additional share appreciation,” RBC Capital Markets analysts wrote in an Aug. 17 note titled “All I Wanna Do is Zoom-A-Zoom-Zoom,” a reference to the early-90s rap hit “Rump Shaker.”

The analysts, who maintained at outperform rating and raised their price target to $300 from $250, said that data from SensorTower shows metrics are seeing “moderation from April peaks yet remain significantly above pre-COVID levels.”

Zoom has also been pushing new initiatives, expanding its Zoom Phone cloud-telephony service to new countries and introducing a hardware-as-a-service offering as well as a Zoom for Home device. While that may not make a material difference immediately, it is additive for the long term and helps Zoom compete against legacy offerings like Cisco Systems Inc.’s
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-0.21%

WebEx.

“We also continue to view Zoom Phone as an interesting component of the company’s market opportunity,” William Blair analysts said in a Wednesday note that maintained an overweight rating. “Our industry conversations suggest that continued development around this product, as well as persistent expansion of native international support, is driving competitive wins against legacy solutions as well as modern UCaaS providers.”

While continuing to try to nab customers from competitors, Zoom may already have the largest share of the videoconferencing market. JP Morgan analysts reported on July 31 that Zoom has now captured roughly half of the videoconferencing market just more than a year after its initial public offering.

“Zoom has captured the biggest portion of market share, increasing
from ~34% of total MAU’s back in March, to over 48% as of July 24th,” the analysts wrote while maintaining an overweight rating. ” Google
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+0.67%

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+0.61%

also seems to have captured market share, but their offering is free leveraging what we think to be education customers and smaller businesses that are not where we see the biggest long-term opportunity for Zoom.”

What to expect

Earnings: Analysts on average expect adjusted earnings of 45 cents a share, according to FactSet, up from 8 cents a share a year ago, after Zoom guided for adjusted earnings of 44 cents to 46 cents a share. Analysts were predicting 11 cents a share in adjusted earnings ahead of the last earnings report from Zoom.

Estimize, a software platform that crowdsources estimates from hedge-fund executives, brokerages, buy-side analysts and others, reports an average projection of 50 cents a share in adjusted earnings.

Revenue: Analysts on average expect revenue of $500 million, according to FactSet, up from $146 million a year before, after Zoom projected sales of $495 million to $500 million. Analysts were expecting less than $225 million on average before Zoom increased its forecast in early June.

Contributors to Estimize expect revenue of $531.9 million on average.

Stock movement: Zoom stock has increased the day after the company released earnings in three of five instances since the company went public, including both events so far in 2020, when shares increased 7% and 7.6% respectively. The stock overall has more than quadrupled this year, gaining 339.8% as the S&P 500 index
SPX,
+0.67%

has gained 10%.



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