BY ROBERT CYRAN

Biotech firms Moderna and BioNTech used a biotechnology known as messenger RNA, or mRNA, to produce vaccines effective against Covid-19 with miraculous speed. That has pushed the combined worth of specialists in this emerging field to more than $120 billion. That’s a glimpse of what’s possible if it can be applied post-pandemic to treat cancer or rare diseases.

The technology is the closest thing yet to making medicine digital. MRNA vaccines essentially inject genetic code that instructs a recipients’ cells to construct a part of the virus. The body recognizes the produced protein as foreign and mounts a future immune response when exposed. Moderna and BioNTech’s vaccines show the technology works fast. Vaccines typically take a decade to develop. They took less than a year.

The total annual market for vaccinations is about $35 billion, according to Bernstein, and dominated by firms like Pfizer and Merck. Big pharma companies are valued at 5 times revenue. Put mRNA firms on the same multiple and that implies investors believe they will capture about two-thirds of the market.

It’s possible. The speed of mRNA therapeutics is a big advantage. For example, flu vaccines only reduce the risk of illness by up to 60% because makers must guess which strains will be prevalent each season. Sometimes they’re wrong. Shaving months off means better guesses, and higher efficacy.

The bigger opportunity comes from the validation of the mRNA “platform”. Instructing cells to produce desired proteins could lead to multiple advances. Perhaps they can instruct the body to more vigorously attack cancerous cells or repair damaged tissue. Producing missing proteins might fight inherited diseases.

It’s not a given. The body breaks mRNA down quickly, and larger doses trigger immune reactions. That can be a benefit for a vaccine, or possibly treating cancer, but it’s a problem for other uses. Researchers have figured out some tweaks – a layer of fat around mRNA vaccines keeps them circulating longer – but they’ll need more.

Success against Covid-19 means these companies will be flush with cash from sales and attract partnerships and scientific talent. That should make 2021 a watershed. There’s a hopeful precedent in monoclonal antibodies therapy. Sales only took off about two decades ago,but should reach $150 billion in 2020, estimates EvaluatePharma. That’s worth perhaps $750 billion based on a multiple of five – and gives a view of what might be possible with mRNA.

First published December 2020

BY JENNIFER SABA

Bob Chapek is coming up on his one-year anniversary in February as chief executive of Walt Disney. He has made good work of shifting the Magic Kingdom’s focus on streaming video and capturing some Netflix fairy dust. In the coming year Chapek could make his mark in another way: An ESPN spinoff would keep Disney ahead of the game.

The $300 billion entertainment conglomerate’s stock has been buoyed by the eye-popping success of its direct-to-consumer service Disney+. In just over a year it has landed 87 million subscribers, near its five-year target of 90 million customers. It now expects to gain up to 260 million customers by 2024. Netflix, by comparison, has 195 million subscribers more than a decade after its debut.

Chapek reorganized the ranks to put streaming front and center in October. Sports, TV and films are created under separate division heads but Kareem Daniel, chairman of media and entertainment distribution, has been given financial oversight over all content across the Magic Kingdom.

To reduce Disney’s reliance on cable distributors and further change within the group, he should set ESPN free. Disney doesn’t own the channel’s core content: It pays princely sums for the right to air sporting events, such as National Football League matchups. Overall, Disney is on the hook for more than $40 billion in sports programming commitments –more than triple the amount a decade ago.

More viewers might help offset the expense, but consumers are eschewing cable and ESPN’s audience is shrinking. The prime network counts over 80 million subscribers – down approximately 16% from 2010. Direct-to-consumer service ESPN+ has about 12 million customers, yet that’s less than 10% of Disney’s overall streaming video subscriber base including Hulu.

MoffettNathanson estimates ESPN accounts for about 60% of Disney’s cable operating profit of some $6 billion last fiscal year. But the unit’s margin has been shrinking from about 39% in 2010 to an estimated 30% in 2022 according to forecasts from Barclays. Chapek could cleave ESPN into a separate company, which could be worth some $40 billion at just under 12 times operating profit. It would be a bold play to make Disney more agile in its battle with Netflix.

First published December 2020

BY KATRINA HAMLIN

China’s WM Motor will start pulling ahead of Tesla wannabes. The Shanghai-based upstart chose a different path to Elon Musk and compatriots such as Nio and Xpeng, opting to list at home instead of New York, and choosing the mass market over luxury. As a result, WM Motor will be close to gross profitability by the time it lists early in 2021.

Although its last funding round raised a record 10 billion yuan ($1.5 billion), the company’s family-friendly models have not generated the hype that drove Nio shares to a quadruple-digit rally in 2020. That outfit reported a 1 billion yuan net loss in the third quarter but still trades at a price-to-sales multiple higher than Tesla’s, itself already worth over $570 billion in mid-December.

Founder Freeman Shen is no less daring than Musk or Nio’s William Li, however. Tesla started out targeting the premium sector before building more affordable mass-produced models, as Musk explained in his 2006 strategy. Nio followed him, rolling out fancy sports cars to generate headlines and establish engineering and design cred. But WM is going straight to the mass market. If it works, it could end up ahead of its more exuberantly valued peers.

Shen believes Chinese consumers are ready for battery-powered rides that are not status symbols. Its flagship plug-in sports utility vehicle, the EX5-Z, retails for about half the Tesla Model 3’s price. WM sales were close to 20,000 in the first 11 months of 2020, putting it on track for a 30% increase in deliveries compared to a year earlier. At that rate annual unit sales will be higher than Nio, Li Auto or Xpeng’s respective total sales at the time of their listings.

It is also better able to control costs via economies of scale. Nio and Xpeng have outsourced much of their manufacturing to contractors. WM has in-house research and production in place, including factories with a current capacity of 250,000 units per year, and space to double output. With the potential to rev up margins, the newest electric-vehicle stock on the block could one day outshine flashier peers and compete with giants such as Nissan and Geely Automobile.

First published December 2020

BY ANNA SZYMANSKI

The pandemic pet boom has some bark left in it. Locked-down humans adopted four-legged friends at a rapid pace during the lockdowns. This pushed global pet product sales up to $125 billion, according to Packaged Facts. But Fido will require food, treats and medicine after the vaccine arrives, and spending on services like grooming could rise. Companies that have lapped up sales still have room to run.

Chewy was best in show. The pet online retailer run by Amazon.com alumnus Sumit Singh saw its share price leap 160% through mid-December, with a 46% surge in net sales in the first three quarters of its fiscal year. It added 150% more active users in the first three quarters than in all of 2019 – bringing the total to near 18 million. Subscription sales may make customers sticky, and increased focus on private-label products and healthcare services should fatten margins.

It wasn’t the only winner. Zoetis, the animal medicine developer led by Kristin Peck, had a more modest 20% share price bump in 2020. In November it raised its full-year revenue guidance to $6.6 billion. Pet pain medicine sales could juice growth in 2021, offsetting weakness in the former Pfizer division’s livestock segment.

But bricks-and-mortar pet supply chains are a bigger question mark. PetSmart, which leveraged itself to buy Chewy for over $3 billion in 2017, said in October that the two would split. But investors balked at the refinancing, prompting S&P Global to downgrade PetSmart’s credit rating. Meanwhile, Petco is looking to go public and reduce debt. While higher same-store sales may provide a tailwind, both firms will struggle to compete with more nimble competitors that can afford to keep losing money, and may need to shift further into high-margin services.

All in, the post-pandemic pet industry will be bigger, but also become more concentrated, especially as many mom-and-pop outlets may not weather the lockdowns. So Chewy trading at just under 6 times sales in mid-December, roughly double its pre-virus multiple, is justifiable. True, a shift in investor sentiment away from pandemic darlings would knock high-flying stocks like Chewy temporarily, even if their underlying businesses remain strong. But, long-term, the leaders of the pack are likely to pull away.

First published December 2020

BY YAWEN CHEN

Get ready for a tea comeback in China. The drink so closely associated with the country’s history has been supplanted of late in the zeitgeist and financial markets as a bitter battle for coffee dominance rages. In 2021, however, investors will be gulping down the latest craze in steeped leaves.

Despite recent pandemic-related setbacks, Starbucks and its giant roasteries have made a caffeinated splash in Shanghai and beyond. Its success is inviting fresh challengers. The spectacular floundering of local wannabe Luckin Coffee left a competitive gap being filled by McDonald’s, local KFC owner Yum China and others.

As java overflows, bubble tea has been quickly brewing. Since the concept of dropping chewy tapioca balls – or bobas – into black tea was introduced from Taiwan in 1997, China’s consumption has reached five times that of coffee, according to analysts at China Merchants Securities. They reckon the number of shops pouring fresh-brewed product registered 74% growth in 2018.

There are low barriers to entry, but only a few stars have emerged. Heytea was valued at $2.5 billion after raising over $95 million, most recently from Hillhouse Capital and Coatue Management. Founded by Nie Yunchen eight years ago, it operates nearly 600 stores in China. Nayuki, a younger rival with around 350 locations, secured some $100 million in its latest funding round. Smaller Guming is another emerging favourite.

Unlike coffee, which has become a status symbol for China’s white-collar elite, bubble tea attracts a younger generation. They’re willing to pay 20 to 40 yuan ($3 to $6) for a cup that may include cheese topping or fruits.

That Generation Z appeal should help make bubble tea purveyors popular with the mom-and-pop Chinese investors who dominate the public markets. Other eateries have fared well. For example, hot-pot chain Haidilao International’s share price had tripled by mid-December since going public in 2018. That bodes well for Heytea and its peers, which could easily command a similar valuation as Starbucks, at 30 times expected earnings.

Things are so hot in tea, in fact, that brewers are eyeing the market for espressos and cappuccinos. By the end of 2021, the coffee makers could be competing back, fully inflating a bubble-tea bubble.

First published December 2020

BY ROBYN MAK

Anthony Tan will cement his star status in the year ahead. The chief executive and co-founder of Grab has deftly steered the $15 billion Southeast Asian all-in-one app through economic turmoil. Even as lockdowns pummelled the company’s main ride-hailing business, the pain has been largely offset by surging demand for food delivery and groceries. Overall revenue has bounced back to pre-virus levels, the company says. With such momentum, a new push into financial services will put Tan firmly in the tech limelight.

The digital finance opportunity is huge. A joint survey from Alphabet-owned Google, Temasek and Bain & Company found that over a third of e-commerce consumers in the region’s top six economies only started to use online services because of the pandemic and over 90% plan to stick with their new habit. The same report forecast online payment transactions will rise 15% to $1.2 trillion by 2025, up from $620 billion in 2020.

Grab already has payments, insurance and small business loans in most of those markets. In August, the company unveiled a suite of new offerings, including a wealth management product in Singapore that allows users to invest as little as $1, as well as “buy-now-pay-later” plans in multiple countries. Recently, Grab’s venture with mobile carrier Singtel won one of Singapore’s first digital bank licenses – a potential precursor to similar moves into Malaysia and the Philippines, as they prise open their banking sectors.

Deep penetration in a rich country like Singapore may prove an advantage. Higher-margin fees and commissions that Grab can secure on its home turf in retail banking and other services will support its bottom line as the company continues its regional expansion. Top rival Gojek, backed by Facebook and PayPal, dominates in Indonesia which is a much larger but poorer market.

The ultimate prize could come from a long-anticipated merger between Grab and Gojek. The two loss-making arch-rivals may decide to become allies as video-games colossus Sea Limited fast becomes a serious contender in mobile wallets. If antitrust regulators allow any such deal, the Singaporean group is likely to lead the consolidation — and Tan will be centre stage.

First published December 2020

BY KATRINA HAMLIN

U.S. online gambling is one of 2021’s better bets. After a painful pandemic, wagers will become a welcome source of tax dollars across America. The potential market for internet sports betting could be worth up to $23 billion, twice the annual gaming revenue of Nevada casinos, according to company estimates compiled by Bernstein. Websites and old-school casino companies are set to pocket winnings.

Online betting shops have faced tricky odds in the United States. A 2018 Supreme Court ruling allowed states to legalise sports bets. But the federal Wire Act still complicates some ventures by limiting gambling across state lines. Only a handful of states have taken a chance on an online sports book, with much of the action in New Jersey, Pennsylvania and Delaware.

Those few are enjoying a windfall. New Jersey’s sports wagers totalled $4.1 billion through October 2020, with virtual gambling accounting for more than 90% of October’s bets, according to PlayNJ analysts. Like other home entertainment, digital sports betting had a captive audience when Covid-19 struck and is on track to rise by around a fifth globally in 2020, Fitch Ratings estimated in November. There is scope for further growth. New habits may stick, and legal options could displace illegal ones.

More states are likely to take the plunge, too. With typical tax rates on internet gambling in the mid-teens or higher and growth accelerating, it’s an opportunity to top up their coffers. And while online casinos come with a stigma, a nation of football, basketball and baseball fans may find sports betting more palatable. Massachusetts is debating the inclusion of online sports betting in its economic development bill. Ohio and New York are also looking at the idea.

Dublin-based betting behemoth Flutter Entertainment just committed $4.2 billion to increase its stake in U.S.-based sports betting site FanDuel, hailing easing American rules as “the single biggest market opportunity” today. A fellow investor, media group Fox, secured the option to raise its own stake. Meanwhile, casino operators are overcoming fears of cannibalizing their in-person business: MGM Resorts International and Caesars Entertainment are building up online, and Wynn Resorts started offering online sports betting in the third quarter. After the tax collectors get their cut, shareholders can divvy up the jackpot.

First published December 2020