😱 Apple Ordered to Halt Watch Sales

Plus, Adobe and Figma break-up and Tencent's valuation plunges...

December 24, 2023

🎄 Merry Christmas Eve

On behalf of the Blossom team, I wish you and your families a very happy holiday. I hope you have a chance to rest, recharge, and spend time with your loved ones this holiday season!

This edition of the Weekly Buzz comes hot off the press from my grandma’s house in Summerland, BC where I’m spending my holiday. After I hit send, I’ll be signing off and taking a much-needed holiday break myself, before getting back at it next week! 😃

Let’s get into it,

Max, CEO of Blossom

TOP STORY
⌚️ Apple Halts Watch Sales Over Patent Dispute

Apple has announced an unprecedented pause on the sales of its newest Apple Watch models, the Series 9 and Watch Ultra 2, following a patent dispute related to the blood-oxygen sensor technology used in the devices.

With legal issues, heightened competition in China, and a massive $1T rally in 2023, some analysts believe Apple is now overvalued.

⚖️ Patent Troubles:

The pause on Apple Watch sales comes amid a heated legal battle with the medical technology company Masimo, which sued Apple in 2021 for allegedly infringing on its patents for light-based blood-oxygen monitoring. The US International Trade Commission (ITC) found Apple indeed violated these patents and imposed a ban on the sale of Apple Watches in the US.

In the lawsuit, Masimo accused Apple of acquiring secret information “under the guise of a working relationship”. Apple first reached out to Masimo in 2013 to ‘learn more about Masimo’s technologies and possibly integrate them into a then-unreleased product.’

Apple would later go on to poach key Masimo employees, including Michael O’Reilly, former Chief Medical Officer, and Marcelo Lamego, Chief Technology Officer for Cercacor, a spin-out of Masimo.

👀 Masimo making moves

In a notable coincidence, Masimo recently announced that its own health-tracking smartwatch, the Masimo W1, has received FDA clearance.

📈 Masimo’s stock is up 4.45% this week.

🛑 How long is the ban?

The ban is subject to a presidential review ending on December 25. If the Biden administration decides to strike down the ruling, sales can begin again, though it’s not clear how soon. Apple can also appeal the ruling, or settle with Masimo which could involve deactivating the disputed blood-oxygen sensing features in the Apple Watches.

😰 Impact of the Ban

The ITC's ban specifically targets Apple, meaning that the Apple Watch Series 9 and Watch Ultra 2 can continue to be sold by other retailers like Amazon and Best Buy. The ban is also only within the US, meaning the Watches will remain available in international markets.

According to data from Finchat, wearables make up only 10% of Apple’s revenue.

📉 Apple’s stock is down 1.45% this week.

🍎 Apple 2024 Outlook

This year, Apple added a whopping $1 trillion in market value and some analysts speculate that these gains will be difficult to replicate in 2024. In addition to the fiasco with Masimo and their Apple Watches, Apple also faces uncertainties in China and increased competition from Huawei.

With a +50% rally this year, Apple's valuation is now 29 times projected profits for 2024.

While some of Wall Street is cautious, others like Wedbush Securities analyst Daniel Ives, believe Apple could reach a $4 trillion market value by the end of the next year (33% higher than its current $3T market cap).

BLOSSOM SWAG
👕 The Blossom Swag Store is Live!

Nike stock fell 11% this week and it wasn’t because they slashed their revenue outlook, it was definitely because of the launch of the Blossom swag store!

We’ve got awesome hoodies (like the one Brandon is rocking in the photo), shirts, and tote bags, with hats coming soon 😊 

All the items sold at cost!

MERGER DRAMA
💔 Adobe and Figma Break-up $20 Billion Merger

The wedding’s been called off, Adobe has officially dropped its $20 billion bid to acquire Figma, known for its collaborative design software, after regulatory concerns.

But the two design giants likely don’t have their hearts broken about the split. Adobe’s stock is up 2.41% since the announcement, and Figma will receive a $1B breakup fee from Adobe 🤑.

So why the break-up?

🛑 Regulatory Hurdles

Announced last fall, Adobe's attempt to take over Figma was met with strong opposition from antitrust regulators in the US, EU, and UK who believe the merger would create a design monopoly, stifling competition.

Although Adobe argued that its product, Adobe XD, was not a direct competitor to Figma and that there was no significant customer overlap, Adobe and Figma met significant challenges in swaying regulators. The companies said they saw “no clear path” to getting regulatory approvals.

🤝 Strategic Decision

Both Adobe and Figma concluded that continuing to fight the regulatory battles was not worth the effort - pointing to the long drawn-out process seen with other tech giants like Microsoft and Activision. Dana Rao, Adobe’s general counsel stated that the only way to address the regulators' concerns was to not proceed with the deal.

❝

“Adobe and Figma strongly disagree with the recent regulatory findings, but we believe it is in our respective best interests to move forward independently,”

Shantanu Narayen, chair and CEO, Adobe

How will this impact Adobe?

🤖 Focus on Generative AI

Abobe’s probably not too sad about the deal falling as since the announcement last fall, Adobe is in a much stronger position due to its investments in generative AI and the launch of popular features like Adobe Firefly.

Year-to-date Adobe ($ADBE) is up over 77% and due to Adobe’s AI-driven stock gains, the deal’s total cost would have been closer to $26.5 billion.

💰 Capital Reserves

With the merger falling through, Adobe now has a substantial capital reserve. Experts anticipate this could lead to share buybacks. Combined with the avoidance of stock dilution from the aborted deal, this is expected to boost Adobe's earnings per share (EPS).

❝

“The exact strategy Adobe will adopt for the redeployment of the funds remains uncertain. However, if they choose to redirect approximately half of that amount to stock buybacks, we could see a 2-3% increase in our projected EPS for calendar year 2025, which currently stands at $20.12."

- Evercore ISI analyst report

CHINA
💔 Tencent Plunges $80B After Renewed Regulatory Fears in China

Tencent, one of the largest multimedia companies in the world, saw its stock plunge over 12% on Friday after unexpected new gaming restrictions in China, renewing fears of government intervention in the Chinese internet sector.

✍️ New Regulations

The new regulations include spending caps, bans on certain game features, and prohibitions on content that compromises national security. These measures, reminiscent of the 2021 tech-sector crackdown, have caused widespread uncertainty and concern among investors and industry professionals.

💣️ Market Impact

Amid the news, Tencent's shares plummeted 12%, the stock’s worst day since the 2008 global financial crisis.

NetEase and Bilibili, two other Chinese internet giants, also fell 25% and 5% respectively. The widespread losses demonstrate the shaken investor confidence caused by the new rules.

🏢 Government's Stance on Gaming and the Private Sector 

The Chinese government’s actions align with their recent campaign against the private sector, which they view as too powerful and potentially threatening to its economic control. The crackdown on gaming, which started around 2018, is part of efforts to address social issues such as gaming addiction and its associated societal impacts.

CANADIAN BANKING

 🤝 RBC Set to Finalize $10B Acquisition of HSBC Canada

The Royal Bank of Canada (RBC) has secured government approval for its $10 billion acquisition of HSBC’s Canadian operations. This marks RBC's largest acquisition to date, positioning it to significantly expand its domestic footprint in the wealth management, personal, and commercial banking sectors.

📈 RBC’s stock ($RY) is up 1.27% this week on the news. RBC is up 4.41% YTD.

The approval from Finance Minister Chrystia Freeland comes with specific conditions, including job protections, maintaining select HSBC branches, ensuring client transition ease, and a commitment to offer substantial financing for affordable housing in Canada.

The acquisition not only fortifies RBC's status as Canada's largest lender but also aligns with its strategic growth plans. The deal is expected to enhance RBC's customer base and branch network, particularly in Toronto and Vancouver.

HSBC's decision to sell is based on its relatively small market share in Canada and its belief that RBC's resources and network can more effectively serve its customers.

FROM THE BLOSSOM COMMUNITY
🎙️ Top Discussions This Week

🗞️ What else you might’ve missed: