This Week's Business RoundUp / Intel invests $100B in Ohio / Peloton CEO calls production halt rumor false

Plus, Netflix shares fall over 20% following Q4 earnings report.

Inside.com Part of   Network January 21, 2022

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This Week's Business Roundup Hello Readers! Welcome to this week's Business Roundup, the first of the year! For those not familiar, this is where I summarize the top three business trends/stories of the week. Following our rule of three, this week we have: Earnings Earnings Earnings, Laying the Foundation of the Metaverse, and Big Tech Crackdown Continues. Earnings Earnings Earnings: It was a busy week for earnings releases. We got Q4 and full-year earnings from the nation's top banks, airlines, P&G, and Netflix. Banks reported record revenues, and airlines narrowed their losses, pointing to strong economic recovery and people feeling more comfortable booking trips. This week, several airline CEOs signed a letter addressed to the White House, the FAA, FCC, and the transportation secretary warning of the impact on travel and shipping Verizon's and AT&T's rollout of the 5G cellular service will have. In response, the two major service providers decided to delay the rollout in certain areas to avoid flight interference. Laying the Foundations for the Metaverse: Last year, Walmart filed seven trademark applications noting plans to create and sell virtual items, including creating its own digital currency. The e-commerce giant joins a growing list of companies taking long bets on the Metaverse. Microsoft is acquiring game maker Activision Blizzard for $69B in what is gearing up to be the largest acquisition in the gaming industry and Microsoft's biggest purchase to date. Money is also pouring into metaverse and web 3 projects. Berlin-based VC Cherry Ventures announced that it had raised a $340M fourth fund for early-stage tech startups working on crypto and web 3. Andreessen Horowitz also announced plans to raise $4.5B for two crypto funds. Want to learn more about the metaverse? Join Inside on Jan. 27 at 11 a.m. PT for a free webinar titled Understanding the Metaverse, where we explore the next iteration of the internet with amazing guests who are building and investing in this space. Click here to register. Big Tech Crackdown Continues: Across the globe, countries are taking steps to rein in the power and growth of major tech companies. In the U.S., the Senate Judiciary Committee approved new antitrust legislation that would ban big tech companies like Apple and Amazon from giving preference to their products and services. China's Cyberspace Administration this week issued new investing guidelines for the country's top tech companies like Alibaba and ByteDance. The internet regulator now requires tech companies with 100 million or more users or companies that earned 10 billion yuan (~$1.57B) in revenue the prior year to seek formal approval before pursuing any investment deal. Apple opened its App Store payment system to dating apps in the Netherlands following a ruling requiring it to do so. The FTC, led by Lina Khan, is considering new guidelines for mergers, acquisitions, etc. We expect to see more of these stories as the year unfolds. Bonus: Peloton had an interesting ride this week. It was reported the exercise company had hired consulting firm McKinsey & Co. to review its cost structure. It was also reported that the company's top execs had sold roughly $500M in company shares right before its stock price dropped. Then on Thursday, it was reported that the company would halt the production of its bikes and treadmills due to low demand. This news was followed by a note from the company's co-founder and CEO, John Foley, claiming that reports the company is halting production are false. Foley noted the information shared with the press was leaked, incomplete, out of context, and not reflective of the company's strategy. He stated the leaker had been identified, and the company is pursuing appropriate legal action. What stories would be in your top three? As always, I love to hear your thoughts on any of this week's stories. Feel free to reach out at vanessa@inside.com or on Twitter @Ms_Omeo. To see all Inside Business newsletters from this week, click here. Have a wonderful weekend! Vanessa

John Foley, CEO Peloton|Image: Jeenah Moon Peloton co-founder and CEO John Foley sent out a note to the entire company on Thursday evening following news that the company was planning to halt the production of its bikes and treadmills. Foley said the information shared with the press was leaked, incomplete, out of context, and not reflective of the company’s strategy. He noted the leaker has been identified, and the company is pursuing appropriate legal action. More: He called the rumors that the company was halting the production of its bikes and treads false. He noted the company grew quickly to meet the unprecedented demand that came due to the COVID-19 pandemic. The growth it anticipated would occur over three years happened in months from 2020 into 2021. The company is now focused on “right-sizing” its production by resetting its production levels for sustainable growth. Foley reported that for Q4 2021, Peloton’s connected fitness business had a 0.79% churn rate, which he says would be a key part of the future of fitness. Foley also noted Peloton recently recorded its highest number of daily workouts, over 2.9 million. Peloton shares rose in early morning trading on Friday. It closed at $27.06, up ~12% for the day. In related news: Peloton released its preliminary Q2 FY 2022 results on Thursday evening. It reported total revenue of $1.14B and Connected Fitness Subscriptions of about 2.77 million.

Intel Corp announced on Friday that it will be investing up to $100B to build the largest chip manufacturing plant complex in the world. The company plans to build eight total plants in Ohio and has already committed an initial $20B on a thousand-acre site in New Albany, Ohio. The investment is estimated to create roughly 3,000 jobs in the area. This is part of the company’s long-term strategy to revamp its chip-making business and help reduce the U.S.’s dependence on foreign chips in light of the ongoing global chip shortage. More: The investment is the largest in Ohio’s history and will make the state the largest semiconductor manufacturer in the world. Up until last year, Intel was the world’s top chip producer, but the company lost that title to Samsung Electronics in 2021. In September, Intel broke ground on its two new chip factories, worth $20B, in Chandler, Arizona. The factories will be in operation by 2025. The company hopes to announce a new chip manufacturing site in Europe later this year. Intel CEO Pat Gelsinger noted that though investments are being made for the long term, the current chip shortage could last through 2023. In related news: The Biden Administration is working on getting legislation approved that would provide $52B for U.S. semiconductor production, including $2B for chips used in automotive production.

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Image: Qatar Airways French planemaker Airbus has canceled its contract with Qatar airways to produce 50 A321neo jets for the airline. This is due to an ongoing conflict between the companies over surface erosion on Qatar’s A350s made by Airbus. Qatar is seeking $600M in compensation for the damages on the planes. The airline has grounded 21 of its Airbus A350 jets due to the extensive damage on the planes. A procedural hearing is set for April in Britain’s High Court. More: Qatar Airways is expected to fight the terminated contract for the A321neo jets, for which delivery was expected to start in February 2023. Qatar is planning to use the A321neo jets to launch flights in new markets. In response to news of the canceled contract, Qatar released a video showing the extent of the damages on its Airbus A350 fleet. In a statement, the airline noted it has adhered to all its obligations under all applicable contracts and regrets that Airbus has taken an apparent decision to expand and escalate their dispute.

TikTok parent company ByteDance shared highlights of its 2020 financial performance in a memo to employees on Thursday. The Beijing-based startup is a privately held company and was last valued at $180B in 2020. The startup reported $34.3B in total revenue, a 111% increase from a year prior. It reported a gross profit of $19B, a 93% increase YoY. More: As of Dec. 2020, the company had over 1.9 billion monthly active users across all its platforms, including TikTok, Douyin, and Jinri Toutiao. ByteDance reported an operating loss of $2.1B, pointing to share-based compensation to employees. The company reported a net loss of $45B, due mostly to an accounting adjustment for the increase in the value of its convertible redeemable preferred shares. In 2021 TikTok surpassed Facebook as the most downloaded app and also the most time spent per user.

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Blackstone is partnering with Starwood Capital for a second time to acquire 111 WoodSpring properties for $1.5B. WoodSpring specializes in accommodations for guests staying weeks or longer. Demand for extended stay lodging has spiked since the onset of the pandemic due to healthcare workers and essentials who have to travel for work and remote workers who are taking advantage of work flexibility to become digital nomads. The deal is expected to close as early as next month. More: In March, Blackstone and Starwood Capital acquired Extended Stay America in a 50-50 deal for $6B. In 2021, extended stay hotels in the U.S. saw a 73% occupancy rate. Big names in the hospitality industry are also exploring ways to offer guests working and dining spaces in their hotel rooms. Marriott is exploring a new room setup where beds rise to the ceiling to reveal a tabletop for work or meals. Blackstone and Starwood are purchasing the properties from Brookfield Asset Management. In related news: Earlier this week, via a Twitter thread, Airbnb co-founder and CEO Brian Cheskey announced he would be living in AirBnBs for the foreseeable future, staying in different cities and locations. The CEO noted this was a way to experience and improve AirBnB’s longer stay offerings, which accounted for 20% of the company’s bookings from July to Sept. 2021.

IBM is selling its healthcare analytics business, Watson Health, to private equity firm Francisco Partners. This is part of the company’s efforts to streamline its operations and focus on its cloud offerings. Francisco Partners is based in California and counts companies like Capsule Corp., GoodRx, and Zocdoc among its investments. The sale price was not disclosed, but previous estimates put the price at ~$1B. More: Watson Health uses AI to manage care, analyze diagnostic tests and other health data, and in medical research. IBM has made several moves to boost its cloud computing business. In 2019 it acquired open-source software company Red Hat for $33M. In 2020 it appointed its cloud and cognitive software division head, Arvind Krishna, as its new CEO. Following news of the sale, IBM shares dropped ~2%. It closed at $129.35, down ~1% for the day.

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Vanessa Omeokachie is a Researcher at Inside. Her interests include finance, tech, and startups. In her free time, she enjoys reading, hiking, attending music festivals, and traveling.  Connect with her on Twitter @Ms_Omeo. Editor Aaron Crutchfield is based in the high desert of California. Over the last two decades, he has spent time writing and editing at various local newspapers and defense contractors in California. When he's not working, he can often be found looking at the latest memes with his kids or working on his 1962 Ford.

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