Stop the Music

Can the EU ban all oil imports from Russia?

May 5, 2022 Read in Browser TOGETHER WITH Good morning, and happy Cinco de Mayo. Bonuses for Wall Street employees, which NY State government figures say hit a record average $257,500 last year, could fall as much as 40% in 2022, according to compensation consultant Johnson Associates. So here's a friendly reminder to all our banking readers — don't spend this year's bonus all in one place.  Morning Brief • The EU wants to ban all imports of Russian oil. Does the Kremlin stand to benefit? • Uber rushes out its latest figures in a drive to blunt selloff triggered by rival Lyft’s subpar results. • The red-hot music-rights market may witness its first major private equity exit soon. Energy European Union Proposes a Ban On Russian Oil The European Union is mulling its biggest step yet in retaliation for Russia’s invasion of Ukraine: banning oil imports from the country altogether. Formal deliberations began Wednesday after EU President Ursula von der Leyen outlined a proposal, and officials are hoping to make a final decision by week’s end (approval would require unanimous consent from all 27 member countries). Even though the US banned imports of Russian oil in early March, its officials warn the EU’s ban may simply drive up prices — lining Russia’s pockets in the process. While all this is happening, another global superpower could walk out the big winner: China. A Crude Awakening The EU’s plan would see imports of Russian crude banned within six months, while refined oil products would be verboten by the end of the year. But war in Ukraine has already spun Europe’s energy paradigm on its head. As energy prices are smashing historic highs across the continent, countries and companies have turned to alternative sources of gas and oil from around the globe. For example, liquified natural gas shipments from North America and Africa to Europe are up 81% and 25% year-over-year, respectively, Vortexa chief economist David Wech told The Wall Street Journal. Still, while von der Leyen says an all-out ban could deprive “the Russian economy from its ability to diversify and modernize,” second-order consequences are quickly turning into lucrative opportunities for Russia and China alike: • Oil prices spiked at the EU’s announcement yesterday, with Brent crude futures rising over 4% to $109 a barrel. This is precisely the danger US Treasury Secretary Janet Yellen warned about last month, when she said “counterintuitively [a ban] could actually have very little negative impact on Russia because although Russia might export less, its price for its exports would go up.” • Before the EU’s proposal, Chinese refiners had been reaping the rewards of Russia’s cornered oil market, buying Russian oil on the cheap as Europe tapers off imports amid sanctions and embargoes. Chinese purchases of Russian crude and petroleum products have risen year-over-year by roughly 86,000 barrels per day this past month, the Financial Times reported. Pass the Potash: The EU also proposed to sanction the potash industry in Belarus, a key Russian ally. The country’s JSC Belaruskali and its export arm controlled a fifth of the global market for potash, a key fertilizer ingredient, before the war.  Swift retribution: The EU is also considering banning Russia’s top bank, Sberbank, plus two others, from the SWIFT financial-messaging network — essentially boxing them out of the global economy. Ukraine’s president Vladimir Zelensky publicly floated such a ban weeks ago. Ride-hailing Uber Tops Expectations Only to Get a Fender Bender from Lyft Uber rolled out some good news Wednesday, but under uber-unusual circumstances.  The ride-hailing giant was forced to shift gears, rushing financial results out in the early hours, after chief rival Lyft’s disappointing financials set a dangerous course for ride-hailing stocks. The move may have blunted some of the whiplash. Strife in the Fast Lane In essence, the ride-hailing industry seeks to give a convincing answer to a single question: what happens now? The last two years were marred by a collapse in demand due to the pandemic, which made the question of whether companies in the sector can find a sustainable route to profitability even more pressing. With pandemic restrictions unwinding, Lyft and Uber’s results this week were expected to provide some fledgling answers. Then, on Tuesday evening, Lyft’s engine stalled. The ride-hailing company said it had served 17.8 million active riders last quarter, missing analysts’ estimates and underperforming its Q4 number. More concerning for analysts was a warning that EBITDA (a proxy for cash flow) in the current quarter will fall between $10 million and $20 million, way off the mark from Wall Street's $81 million projection. Those numbers prompted Uber to rush out its results in an attempt to differentiate itself: • Uber’s latest quarterly report was scheduled to drop Wednesday, after the market closed, but management rushed it out in the morning after an after-hours crash in Lyft's share price on Tuesday evening. It kind of worked: while Lyft’s stock fell 30% for the day, Uber suffered a comparatively modest 5% drop. • Uber, which has a more diversified business than does Lyft, trumpeted its $6.85 billion in revenues in the latest quarter, which beat expectations of $6 billion. Despite restaurants reopening, food delivery service Uber Eats has remained a bigger business than ride-hailing: deliveries grew 12% year-over-year, showing surprising post-pandemic resiliency. “There’s no room for error in this environment, but still, this selloff seems overdone,” Alexander Potter, an analyst at Piper Sandler, wrote in an investor note. It Pays to Eat: One of Uber's key advantages has been its ability to flip drivers from ridesharing to food delivery during the pandemic. Lyft, which still counts ride-hailing as its bread-and-butter, said it is still spending on perks to entice riders back, further exacerbating long-held investor concerns about razor-thin ride-hailing margins. Could Be Worse: On Wednesday, the US Securities and Exchange Commission announced an investigation into Chinese ride-hailing giant Didi Global’s botched US IPO, sabotaged by a crackdown on tech firms by Chinese regulators. Didi's stock has fallen 85% since the debacle, eroding chief shareholder SoftBank's stake by $10 billion. SPONSORED BY BOXABL The Long-Awaited Homebuilding Revolution Materials. Shipping. Labor. Three costs that haunt any homebuilder’s nightmares. But not for long. A startup called Boxabl is using factory production as a sustainable and cost-effective way to build and ship everything from houses to commercial buildings: • Protected by exclusive rights to 39+ patent filings, Boxabl’s manufacturing and shipping innovations allow for a sturdy, sustainable house to be assembled in just a few hours. • After raising cash in 2020 to build a specialized factory, Boxabl has already begun shipping houses, with eyes on expansion. It’s time to pull the $13 trillion construction market into the modern era and make upscale housing affordable for everyone. Invest In Boxabl as they lay plans for the world’s largest and most advanced housing factory.*   Music Rights Private Equity Firm Providence Wants Out of the Music Catalog Market After billions worth of headline-grabbing acquisitions, one major player is pressing pause on the love ballad between private equity investors and song catalogs. PE firm Providence Equity is shopping around its Tempo Music Investments catalog for $600 million, the Financial Times revealed Wednesday. Please Don’t Stop the Music Investors snapped up songwriting catalogs in recent years because the stable income from radio play, music sales, streaming, and licensing was music to their ears at a time of historically low interest rates. Social media amplified their earnings potential, as in the case of a massively popular TikTok clip in which a man set footage of himself skateboarding to Fleetwood Mac's “Dreams.” The video struck a chord and brought the song back to the Billboard charts 49 years after its release. Over $5 billion was spent on music rights acquisitions last year, according to Music Business Worldwide. New Jersey's HarbourView Equity Partners launched with $1 billion in backing from Apollo Global Management to buy rights. In January, it nabbed the catalog of Latin pop star Luis Fonsi (the guy behind undeniable earworm “Despacito”). Popstar John Legend and legendarily hirsute Southern rockers ZZ Top sold their catalogs to private equity giant KKR and music publisher BMG. Bruce Springsteen's catalog sold for $500 million, David Bowie's for $250 million.  Given this, a sale of Providence's Tempo, which would mark the first private equity exit from the song catalog business, raises concerns that inflation and interest rate hikes are catching up with the hype: • Two-year-old Tempo, which owns music by artists including Wiz Khalifa and Florida Georgia Line, is on the block at a price tag of $600 million, representing 20 times its annual income. • According to investors who spoke to the FT, the portfolio is more likely worth $400 million (rising prevailing rates depress the value of fixed-income-like instruments). “When Tempo and Providence went in, interest rates were historically low, so all of their calculations around returns were based upon those rates,” Midia Research analyst Mark Mulligan told the FT. I Feel Fine: Especially large firms like Blackstone, KKR, and Apollo — which put aside $3 billion for buying song copyrights last year — may be fine with the lower returns, since they are buying catalogs as cash-flow-generating alternatives to corporate bonds. How do the lower multiples sit with smaller firms? The answer, my friend, is blowin’ in the economic headwind. Extra Upside • The word of the day is “Duh”: buying Wordle brought The New York Times Company “tens of millions” of new users. • Archeologists have found incredible, 1,000-year-old cave art in…. Alabama. • A renovated Austin duplex, a hot blackjack table, and “Double Down” Alerts. What are “Things that have a history of making people a bunch of money,” Alex? Ding ding ding! Jeopardy jokes aside, our ears perked up when we heard The Motley Fool had announced a new Double Down alert. The company in question already has Microsoft, Alphabet, and Amazon as paying customers, and it looks like the sky’s the limit. Get the full scoop right here. * *Partner You have 0 referrals. Share The Daily Upside, Earn Rewards Or, simply copy and paste your unique referral link and share it with others: https://sparklp.co/bb4b34b2 Just For Fun The history of cell phones. Nice dodge. Written by Sean Craig and Vince DiMiceli. Disclaimer Boxabl's Reg A+ offering is made available through StartEngine Primary, LLC, member FINRA /SIPC.This investment is speculative, illiquid, and involves a high degree of risk, including the possible loss of your entire investment. For more information about this offering, please view Boxabl's offering circular and risks associated with this offering. This is a sponsored ad.  For additional information, please see Boxabl 17b Disclosure on the campaign page.  ADVERTISE // CAREERS No longer want to receive these emails? Unsubscribe here. Copyright © 2022 The Daily Upside, LLC., All rights reserved. 1230 York Avenue, Box 154, New York, NY 10065

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