The EU bans crypto payments & Microsoft's shadow acquisition

Tickergeek weekend update:

Today’s big headlines:

• Microsoft’s Shadow Acquisition

• European Union Bans €3,000 Crypto Payments

• The best performing stock over the past five years

Microsoft’s Shadow Acquisition🤐

What’s happening? Last week in a previous dispatch of ours, we highlighted Microsoft’s appointment of Mustafa Suleyman, co-founder of Google’s AI unit “DeepMind”, as the head of their new AI division. However, the narrative extends beyond a simple new hire.

Suleyman is not only a pivotal figure in Google’s AI endeavors but also a co-founder of Inflection, an AI-centric startup valued at $4 billion. Inflection has emerged as a standout in the private AI startup sphere, particularly after securing $1.3 billion in funding last year.

Here’s the rundown: Karén Simonyan, another co-founder of Inflection, will be joining Microsoft’s AI division, accompanied by several other members of the Inflection team. This unconventional arrangement implies that Microsoft has effectively enlisted one of the most sought-after teams in the AI industry. Interestingly, they achieved this without resorting to the traditional acquisition pathway, thereby circumventing the escalating antitrust scrutiny that tech behemoths currently face.

What’s different about the deal? Microsoft has characterized this move as an “organizational update”, involving a handful of team members and two co-founders transitioning to their camp. However, we find the term “acquihire” more fitting, given that the true value of these AI enterprises lies in their teams rather than their products.

This strategy mirrors Microsoft’s approach towards Sam Altman, following the news of OpenAI’s board assuming control of the company. Despite effectively neutralizing a competitor in the consumer AI chatbot market, this maneuver raises questions about the genesis of the deal and the specifics of its terms.

European Union Bans €3,000 Crypto Payments👨‍⚖️

What’s happening? Several of the European Parliament’s leading committees have now imposed restrictions on cryptocurrency transactions of any denomination conducted via hosted crypto wallets, commonly provided by centralized exchanges like Coinbase.

This development is a direct consequence of the expansion of existing Anti-Money Laundering (AML) and Counter-Terrorist Financing laws to encompass cryptocurrency. The prohibition is specifically targeted at hosted or custodial crypto wallets.

What’s changing? The updated AML legislation imposes certain restrictions on cash transactions and anonymous cryptocurrency payments. As per the revised regulations, anonymous cash payments exceeding 3,000 euros will be prohibited in commercial transactions, and cash payments surpassing 10,000 euros will be entirely outlawed in business transactions.

In response to this development, several crypto exchanges, including Binance and OKX, have already delisted numerous privacy-centric tokens for their European users. While this legislation is anticipated to be operational and enforced within three years, numerous sources speculate that it is likely to be implemented significantly sooner.

What are the crucial details? Patrick Hansen, Circle’s Director of Research and Policy, clarified that self-custody wallets and payments from such wallets were not prohibited. Furthermore, peer-to-peer transfers are explicitly exempted from the regulation.

The best performing stock over the past five years📈

Which stock is it? E.L.F Beauty (ELF) has emerged as the top-performing stock on the New York Stock Exchange over the past half-decade, delivering a staggering 1,839% return to its shareholders. This is no typo, the stock has even surged by over 47% since the beginning of the year.

So, what’s the secret behind this extraordinary success? E.L.F, an acronym for Eyes, Lips, & Face, is a beauty brand that has carved a niche for itself by offering high-quality products at affordable prices. The brand has demonstrated a masterful understanding of modern marketing strategies, particularly those that resonate with Generation Z.

E.L.F’s marketing prowess is evident in its diverse and successful campaigns. Their recent Super Bowl advertisement featuring Judge Judy garnered significant attention, while their collaborations on TikTok have amassed billions of impressions. Their innovative approach to content, such as a true crime parody documentary on YouTube, has attracted over two million views. They’ve even ventured into the virtual world with a Roblox experience, which has been played four million times.

But what factors have contributed to its stellar performance? The beauty conglomerate, now valued at $11 billion, has not only expanded rapidly but has also started to reward its long-term shareholders with substantial profits. The company’s growth trajectory took a sharp upward turn in the first quarter of 2023, when it saw its net margin leap from a negligible 1.4% in the previous quarter to 11.8%. Since then, there’s been no halting the E.L.F juggernaut. However, it’s worth noting the seasonal nature of this business, a fact that becomes apparent upon examining its financial visualisations.

What’s the forward outlook? Currently, analysts are projecting the following:

E.L.F’s growth trajectory appears to be on an unwavering upward trend, with no indications of deceleration in the foreseeable future. Financial analysts are forecasting a continued expansion of the company’s net margin, projecting an increase from 10.6% in 2023 to 16.1% by 2026. This anticipated growth signifies an escalating efficiency as the company continues to scale.

Additional market-moving events🌎

• Terra crypto founder released from prison: The founder of crypto project Terra, Do Kwon, has been released from prison in Montenegro. The same supreme court responsible for this decision, is on the verge of reviewing a decision which could grant or deny extradition to his homeland, South Korea.

• NFT art is once again selling for millions: CryptoPunks NFT #7804 has just been sold for $16 million worth of Ethereum, making it the second-biggest CryptoPunks NFT sale of all time.

• Reddit goes public: On Thursday of last week, Reddit (RDDT) finally began trading on the NYSE, rallying up to a price of $53 per share, and has since retracted by over 14%.

• The overly-exclusive luxury bag: Recently, a legal action was initiated by a pair of individuals from California against Hermès, the renowned French luxury brand (EPA: RMS). The contention revolves around the company’s stringent policies concerning the eligibility to purchase its iconic Birkin Bags. The plaintiffs argue that Hermès’ requirement for customers to demonstrate an adequate buying history before qualifying to acquire a Birkin bag is in violation of competition laws. Intriguingly, this very exclusivity might be the key factor contributing to the product’s initial appeal.

Notable earnings this week💵

• McCormick & Company (MKC) will report Tuesday. Analysts estimate $1.56B in revenue (-0.35% YoY) and $0.58 in earnings per share (-1.69% YoY).

• Cintas (CTAS) will report Wednesday. Analysts estimate $2.39B in revenue (+9.13% YoY) and $3.58 in earnings per share (+14.01% YoY).

• Paychex (PAYX) will report Wednesday. Analysts estimate $1.46B in revenue (+5.72% YoY) and $1.37 in earnings per share (+6.20% YoY).

• Carnival Corporation (CCL) will report Wednesday. Analysts estimate $5.42B in revenue (+22.29% YoY) and -$0.18 in earnings per share.

Our selections performance👾

Last week Monday, we released our “two superperformers” stock picks which we believe will provide significant outperformance compared to the S&P 500.

Here’s how the two stocks have performed since then:

• Evolution AB: 1,245.80 SEK (📉-5.10%)

• Hims & Hers Health: $16.33 (📈+12.85%)

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