🐱👤 Cybersecurity Fiasco Surprise

MARKET UPDATE

Good Morning Investor! On Monday, shares of 7-Eleven Owner Seven & i Holdings ($SVDNY) saw its share price shoot up 23% following a takeover offer from Alimentation Couche-Tard ($ATD.TO) — the owner of Circle K. If the deal goes through, this would be the largest-ever foreign takeover of a Japanese company. For context, Seven & i has a US convenience store market share of 8.5%.

TODAY’S BIG HEADLINES

Palo Alto Shrugs Off Crowdstrike Outage Concerns

Epic Games Launches Apple App Store Rival

Starlink Competitor, AST SpaceMobile’s Shares Blast Off

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CYBERSECURITY

Palo Alto Shrugs Off Crowdstrike Outage Concerns🐱‍👤

All Eyes on Number Two: This earnings season has been more unpredictable than a randomly generated password. The cybersecurity industry's frontrunner, Crowdstrike ($CRWD), initially reported results as solid as 256-bit encryption, only to crash harder than Windows Vista following their global outage fiasco, caused by a software update gone rogue. This later sparked a legal battle with Delta Airways ($DEL). Crowdstrike's shares have since taken a nosedive of 31% since July's peak.

Palo Alto's Packet Perfection: This fiasco has left Investors jittery about the cybersecurity sector in light of corporate budget pressures and the potential for fallout from the CrowdStrike saga, and just when investors were ready to ctrl+alt+delete the whole sector, Palo Alto Networks ($PANW) logs in with admin privileges. Their earnings report had shareholders smiling like a cheshire cat, with share price pinging up 4% in after-hours trading on Monday evening.

• Revenue for the quarter came in at $2.2 billion, up 12% year-over-year, and leaving analyst estimates of $2.16 billion stuck in the spam folder. For the entire fiscal 2024, revenue was $8 billion, up 16% with 83% of that comprising of Next-Generation Security Annual Recurring Revenue (ARR).

• GAAP Net income clocked in at $357.7 million, or $1.01 in earnings per share, up 57.8% year-over-year. Non-GAAP EPS came in at $1.51 per share, up from $1.44 in the previous year, and beating analyst estimates of $1.41 per share. This increase was boosted thanks to non-GAAP operating margins increasing by more than 300 basis points for the year.

Booting Up the Crystal Ball: Management fired up their quantum computer and generated guidance for fiscal year 2025 that was more optimistic than an AI predicting the end of passwords. Palo Alto expects Total revenue to reach $9.10 billion to $9.15 billion, representing year-over-year growth of 13% to 14%. They're also projecting non-GAAP net income per share in the range of $6.18 to $6.31, a growth rate that would make Moore's Law blush. But the real showstopper? An adjusted free cash flow margin of 37% to 38% – enough to make any CFO's spreadsheets crash from excitement. All of this exceeded analyst expectations.

• As a final flourish, the board approved an additional $500 million in share repurchases, upgrading the company's share repurchase program to a hefty 1 terabyte... I mean, $1 billion.

TECHNOLOGY & GAMING

Epic Games Launches Apple App Store Rival🎮

The App Store Boss Battle: Tech titan Apple ($AAPL) has been facing more boss battles than a Final Fantasy game, clashing with Fortnite maker Epic Games and music streaming platform Spotify ($SPOT). The bone of contention? Apple's policy of pocketing a 30% cut of any subscription or purchase through its app store - a bigger slice than Pac-Man takes out of those power pellets. As you can imagine, this is problematic for companies relying on in-game micro-transactions and monthly subscriptions as their primary source of revenue.

Rocky Relationship: Epic Games, in particular, has been saltier than a Call of Duty lobby about Apple and its app store policies. At one point, Apple even hit the 'Delete' button on Fortnite from its app store entirely - talk about rage quitting! In an attempt to regain a sense of control and forge a direct relationship with its customers, Epic Games has now launched its own rival app store to compete with Apple’s.

• As of now, the store is only available in Europe, and getting there requires more button combinations than a Street Fighter special move. (Here's a walkthrough in case you're interested.) Android users, meanwhile, can access the new app store worldwide.

Cut the Fees: CEO and founder Tim Sweeney has set an achievement goal for this new app store that's harder to reach than the top of the Tetris screen: 100 million app store downloads by year's end. His main argument for creating an app store was to benefit consumers through increased competition and choice. If they're able to pull it off, this could help Epic avoid Apple's 30% fees altogether - a cheat code for profits if there ever was one.

• Apple’s monopoly appears to be falling to bits, thanks to ever-increasing regultory scrutiny. Just last wek, the iphone maker announced that it would allow users to use payment apps besides Apple Pay in a handful of countries including the US — great news for the likes of PayPal ($PYPL).

SPACE & TELECOMS

Starlink Competitor, AST SpaceMobile’s Shares Blast Off🎓

The Final Frontier of Connectivity: The space race is going into hyperdrive faster than the Millennium Falcon making the Kessel Run, with the space broadband market becoming a highly contested space. Up until now, Elon Musk’s Starlink has had a near monopoly over space internet. That, however, appears to be changing with competitor AST SpaceMobile ($ASTS) seeing its share price surge a whopping 50% last week, as if it just engaged its warp drive, all thanks to announcing its maiden commercial satellite launch set for September.

Cellular Focus: However, unlike the leader of the space (pun intended), AST will be focusing on mobile connectivity. So far, the company has partnered with AT&T and Verizon, aiming to beam cellular service from low-orbit satellites down directly to customers’ devices — talk about sci-fi! The emergence of this news has coincided with UBS projecting a significant revenue ramp for the company in 2026 — thanks to “initial US regulatory approval, the imminent launch of its first commercial satellites, and partner/funding progress.”

The Galactic Senate Convenes: Despite having already burnt through $72.6 million in the second quarter alone (that's a lot of space credits), AST is planning on launching as many as 17 more satellites with 120 Mbps data speeds by early 2025. As you can imagine, the competitors in this space are already at each other's throats, waging legal warfare that makes the Clone Wars look like a playground scuffle. AST's partners AT&T & Verizon have both filed FCC complaints against Musk's Starlink, a T-Mobile partner — urging the agency to restrict network usage, arguing that a requested power increase "would cause unacceptable harmful interference" to land-based networks.

• This level of competition however, breeds positive outcomes for everyone (assuming you’re a believer in the free market), with it potentially eliminating cellular dead zones and bringing broadband access to billions.

MORE NEWS

Additional market-moving events🌎

AMD Acquisition: AMD ($AMD) will buy server maker ZT Systems for $4.9B in cash and stock as it seeks to more effectively compete with Nvidia in AI technology. (Bloomberg)

R-Rated Records: Disney’s ($DIS) Deadpool and Wolverine is now the highest-grossing R-rated film ever, exceeding $1.085 billion globally. (CNBC)

Credit card companies open exclusive lounges: Amex, Chase, and Capital One are opening high-end lounges beyond airports to attract big spenders. Locations include festivals, stadiums, and special events as companies compete for customer loyalty. (WSJ)

US Home Construction Slump: July housing starts dropped to their lowest since May 2020 as builders respond to weak demand. High mortgage rates and prices continue to deter buyers, pushing inventory to its highest level since 2008. (YF)

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