Apr 30, 2021

Axios Markets

😎Happy almost weekend people.

Situational awareness: "The euro-area economy slid into a double-dip recession at the start of the year as strict coronavirus lockdowns across the region kept many businesses shuttered and consumers wary to spend."

  • "Output in the 19-nation euro area was down 0.6% in the first quarter and declined at nearly three times that pace in Germany." (Bloomberg)

Thank you for having me and for the playlist suggestions. The best one was a live performance from the U.K. Check it out here.

(Today's TGIF Smart Brevity count: 939 words, 3.5 minutes.)

1 big thing: The founder control premium

Illustration: Aïda Amer/Axios

The generally accepted form of a U.S. startup is now that of a monarchy. Companies and their founders are increasingly indistinguishable — a state of affairs that isn't going down well with workers agitating for a seat at the table, writes Axios Capital author Felix Salmon.

Why it matters: It's nothing new for companies to be dominated and controlled by a single individual — Rupert Murdoch, Sumner Redstone, John Malone, and other media moguls spring naturally to mind.

  • What's new is that this time around, there doesn't seem to be any kind of valuation discount when a company lives at the whim of its founder. Quite the opposite.
  • Tesla is a prime example of a company that trades at a premium thanks to the imperial predilections of its CEO.

What they're saying: "When you get to a certain count — customers or employees or both — there's no pleasing everyone," wrote Basecamp founder Jason Fried in a recent blog post trying to take back more control of his company. "You can't — there are too many unique perspectives, experiences, and individuals."

  • Similarly, Patreon founder Jack Conte recently uploaded a six-minute YouTube video explaining his decision to lay off 36 employees, despite recently closing a $155 million fundraising round.
  • The video features Conte saying "I," "me," or "my" no fewer than 31 times, or about once every 12 seconds on average.

Context: It is now normal for tech companies to go public with a dual-class share structure giving control to the founders — even though doing so makes that company ineligible for inclusion in the S&P 500 index.

  • Companies choosing the dual-class option (or having even more classes than that) include Coinbase, Snap, Airbnb and Bumble. All of them are associated closely with their respective founders.
  • These founders are following the trail blazed by Mark Zuckerberg, who has retained dynastic control of Facebook for himself despite owning only a small fraction of the company. (Zuckerberg's control does not end even when he dies: He can bequeath it to his daughter, should he so wish.)

The bottom line: The cult of the founder has infected both the public and private markets to such a degree that investors no longer require a discount for allowing such a monarchical system.

2. Catch up quick

Copper's rally continues as a demand surge pushed the industrial metal to trade above $10,000 for the first time in a decade. (FT)

Pending sales of U.S. homes rose less than expected thanks to supply constraints keeping buyers out of the market. (Bloomberg)

Labor Secretary Marty Walsh announced support for gig workers receiving benefits as full employees, amid growing pressure from the Biden administration to regulate the gig economy. (Axios)

3. Corporate earnings are 👍

Illustration: Sarah Grillo/Axios

In another sign of the coming economic boom we noted yesterday, first-quarter corporate earnings are continuing to blast through expectations, writes Axios' Editor-in-Chief Nicholas Johnston.

Why it matters: The rising fortunes of big companies are another element — along with trillions in government spending, vaccine-related reopenings and Fed policy — helping create what could be a record year of economic growth in the U.S.

By the numbers: Of the first 260 S&P 500 companies that reported earnings, 220 have beaten expectations, according to data from S&P Global Market Intelligence.

The expectation-beating companies include some of the world's biggest like:

  • Apple "reported double-digit growth in every single one of its product categories," CNBC summed up.
  • Visa was boosted by growing payment and transaction volume.
  • Alphabet beat expectations on 50% growth in YouTube revenue.
  • JPMorgan benefited as the growing economy reduced bad-loan risk and investment banking fees grew.
  • Procter & Gamble exceeded expectations as people kept buying cleaning products and started buying beauty products again, CNBC reported.
  • Caterpillar beat as sales of construction and mining equipment rose.
  • Intel benefited from increased sales of laptop and desktop computers.
  • Coca-Cola said global demand had reached pre-pandemic levels.

Yes, but: All of these earnings reports are being measured against the first quarter of 2020, just as the shutdowns of the pandemic began to take hold, and these gains are happening during reopenings that are extremely difficult to forecast.

4. The rise and rise of used-car prices
Source: Manheim; Data: Axios Visuals

The average used vehicle is now worth $17,609, according to Manheim's Used Vehicle Value Index. Pickup trucks, in particular, are fetching much higher prices than they were worth just a few months ago, Felix writes.

  • The supply-and-demand dynamics are unlikely to change soon. The chip shortage is ongoing and has caused Ford, the maker of the best-selling vehicle in America, to cut its Q2 production by 50%.

Why it matters: Trade-ins are now becoming very difficult. Normally, dealers buy an old vehicle at a discount to what it's worth and hope to sell it at a profit.

  • Now, they need to worry that the whole market will crash from its current frothy highs.
5. Shadow banking is growing up

Illustration: Aïda Amer/Axios

The once notoriously illiquid market for corporate loans has an increasingly active secondary trading scene, writes Axios' Business Editor Kate Marino.

Why it matters: The evolution of the nearly $1 trillion private debt space follows a similar path to one private equity has already tread — the development of a mature secondary market.

  • For private debt, the maturation means private lenders are cementing their encroachment on investment banks’ leveraged lending territory, and that corporate borrowers now have more options than ever for where and how to borrow money.

Driving the news: Apollo Global Management this week announced a $1 billion platform for private debt secondaries — one of the first investment pools of its kind.

  • The firm, which has a $330 billion credit business, is bulking up on staff to handle deal-making, and also wants to raise a dedicated secondaries fund in the future.

"It’s still early days in the growth of the secondary market," Apollo's deputy CIO of credit, John Zito, tells Axios. "The growth of the private credit market has been dramatic, and the likely outcome is that there's going to be more liquidity needed."

Background: Private debt is unregulated, and has grown from a $310 billion market in 2010 to around $975 billion now, according to Preqin.

  • Peep this explainer by Bloomberg’s Kelsey Butler for a history lesson.

What to watch: Zito expects the private debt market to expand by another $300 billion over the next five years.

Thanks for reading! Keep in touch at aja.moore@axios.com or find me on Twitter @AjaWMoore.

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