It's official: Quarterly reports will be voluntary

1️⃣ It's official: Quarterly reports will be voluntary 

Do you remember that about 2 months ago we told you that the SEC wanted to eliminate quarterly reporting for companies? Well… the proposal moved forward with the support of the federal government.

Now companies could choose to report their financial statements semi-annually (what for us today is Q2 and Q4), under a new Form 10-S, keeping Q1 and Q3 updates voluntary.

The official argument remains that this model will prevent executives from making short-term decisions just to impress Wall Street every 90 days. They also expect it to encourage more companies to go public by reducing operational and regulatory costs.

However, we all know that having less frequent information simply means having less information. This reduces transparency in the world's largest stock market and can make it harder to detect problems in companies.

Some CEOs must be popping the champagne because there is no doubt that pressure from Wall Street often causes some companies to make mistakes, and having 3 months of breathing room can give their businesses time to show the best version of their story. Although in the end, the market will find a way to fill the silences.

💡 What you should know: It is practically a given that this is going to happen. The positive side is that as investors we have a new validation point to categorize companies: a company that reports every 3 months has less to hide than one that reports every 6, and most likely the most respectable companies will continue to report every 3.

2️⃣ PayPal rejects Stripe's $53 billion acquisition offer

While we were surprised by the news that Stripe wanted to buy PayPal, we weren't as surprised that PayPal rejected the offer.

PayPal's board of directors officially rejected the $53 billion acquisition proposal (equivalent to ~$60 per share) from Stripe and private equity firm Advent International.

Despite the magnitude of the figure, PayPal said the proposal substantially undervalues the company's business and future potential, and PayPal itself cited regulatory concerns, as a merger of this scale would be a clear target for antitrust scrutiny.

Personally, I think if this story is going to progress, the only way to conclude it with an acquisition will depend on the price.

It is highly unlikely that PayPal shareholders will even consider a proposal below ~$80 per share. Wall Street consensus on the company's value ranges between $50 and $115, this being before the offer but after the 80% collapse. So realistically, a viable offer is going to be around ~$100 per share.

💡 What you should know: PayPal is not necessarily closing the door, it is simply defending its value, and it is logical for them to do so since betting on maintaining their independence can even help them if an agreement is not reached in the end, having gotten something positive out of this unsolicited offer. However, it is no lie that scrutiny is going to be an issue, and even the financial conditions to close the deal may end up being the ones that turn off the music at the party.

3️⃣ Trump threatens EU over fines on US companies

You've probably noticed that tariffs are being brought up all the time again. This time they come in the form of a threat from Trump, raising (again) trade tension between the United States and the European Union.

The tariff warning came in response to the sanction that European regulators imposed on Google for approximately $1 billion, following antitrust investigations, and also for sanctions against Apple and Meta that come from before.

According to the United States, the European sanctions are "illegal, discriminatory and unreasonable" practices, and that the European Union's constant regulations and fines are a way to extract funds from US corporations and taxpayers. 

This sounds a lot like February 2025. 😯

💡 What you should know: The problem with this threat is that it can either temporarily ease the hostility against Big Tech in Europe only to return in a couple of years; or push regulations to stricter levels, also being used as a trade weapon. We will have to see who blinks first.

4️⃣ This does look like a bubble: SK Hynix's price disconnection

SK Hynix is one of the two South Korean semiconductor giants, being the second-largest memory chip manufacturer in the world. Along with Samsung (also South Korean) and Micron (American), they control ~90% of the memory market.

But that's not the gossip. Recently, SK Hynix began trading on the US stock market as an ADR (a certificate issued by a US bank representing shares of a foreign company) trading on the Nasdaq under the ticker SKHY. 

But that's not the gossip either. The gossip is that the shares trading in the United States (the ADR) are trading at a premium of between 30% and 50% above the shares trading on the South Korean stock exchange. Just like that. 😮

In efficient markets, arbitrage opportunities quickly correct these gaps by buying the cheap asset and selling the expensive one, to the point where they reach an equilibrium price. However, operational restrictions and the tax cost of trading in South Korea, in addition to extreme volatility (due to FOMO, I guess), do not let this mechanism work.

Clearly, this is sounding alarms in the offices of many funds, and several analysts are comparing the distortion to what was experienced during the peak of the dot-com bubble in 2000, mentioning that when investors pay massive premiums just to buy a stock in a different market, it is the clearest and most honest reflection of overspeculation. 

💡 What you should know: Paying way too much for the same company in different markets is a classic symptom of euphoria and irrationality. Historically, this type of distortion with ADRs specifically, is taken as a key indicator before major corrections, in this clear case of the tech sector.

5️⃣ Google collapses... It's all part of the plan

Alphabet officially entered bear territory, falling up to ~21% from its peak in May of this year.

Of the 4 tech giants that have been in a period of massive capital expenditure since the beginning of the year, Google had been the least punished by the market in view of a better outlook for return on that spending, compared to Meta, Amazon, and Microsoft.

But that just changed, and not without good reason… Alphabet, for the third consecutive quarter, raised its capital expenditure guidance to potentially $205 billion by 2026, and for practically the first time in its public history, reported negative free cash flow.

If we add to this a couple of red flags, which we tell you about in the video below, the drop of almost 7% after the report this week can be justified.

The question is, is this an opportunity to invest in one of the best businesses in the world, or is the party over? Let's check it out 👇