Dear Reader,
The ongoing negotiations surrounding social media application TikTok got even more interesting over the weekend.
As a reminder, TikTok is majority owned by private tech company ByteDance, which is based in China with direct ties to the Chinese Communist Party.
ByteDance got into hot water last year by violating children’s data privacy laws in the U.S., a practice that continued into this year.
As it turns out, comprehensive behavioral surveillance for all TikTok users is the norm, with all data collected being sent back to mainland China.
This, of course, raised serious concerns in the U.S. government. And it elicited a ban on the TikTok application in the U.S. if a deal were not put in place by this past weekend to separate U.S.-based TikTok operations from the China-based parent company.
At the moment, Oracle has teamed up with Walmart to acquire 20% of a newly formed division called TikTok Global. The amounts being invested imply a $60 billion valuation for the new entity.
The Oracle/Walmart team up came as a surprise to many. Walmart originally started courting Google, then jumped to Microsoft, and ended up in the arms of Oracle… third time is the charm?
This is a clear demonstration of how badly Walmart wants to find a way to somehow drive traffic to its e-commerce platform and close the gap with Amazon in the U.S. market.
The deal gets more interesting, as the suggested structure still implies that parent company ByteDance owns a majority of TikTok Global.
But the reality is that 40% of ByteDance is now owned by U.S.-based firms, which technically means that the majority of TikTok Global would be U.S.-owned. We can also expect that an IPO would follow in the months after a potential deal is closed… further diluting ByteDance’s ownership.
But while the press has latched on to the new ownership structure and potential IPO for TikTok Global, there is one critical issue that hasn’t yet been solved – who owns and controls the underlying technology behind TikTok?
TikTok’s artificial intelligence software, which so effectively understands its users and recommends new people to follow, is the company’s most valuable asset.
This is the “secret sauce” behind TikTok and why the application is so sticky. And in social media, sticky apps directly equate to larger advertising revenues.
It is fascinating to watch this one play out. It may very well become a model for how to deal with similar situations in the near future. That’s why there is so much attention being paid to this deal.
Either way, ByteDance will likely win no matter what happens in the end. With about 100 million monthly active users in the U.S. and a $60 billion valuation, it will be hard not to come out ahead.
We can compare that to Snap, which has a very similar social media application and around 85 million U.S.-based users with “only” a $33 billion valuation.
Given the crazy valuations being ascribed to hot new technology companies right now, taking money off the table at a $60 billion valuation and still retaining some equity for future upside… Well, let’s just say, it’s hard to go wrong.
Now let’s turn to today’s insights…
We are going to start off with early stage biotechnology today.
A company called Recursion Pharmaceuticals just had a massive Series D funding round, raising $239 million. This is an incredible raise for a private company.
And if we look at who led the round, we find pharmaceutical giant Bayer’s venture capital (VC) arm. That’s telling…
When we see massive multinational companies like Bayer investing heavily in a private company, we know an IPO is coming. Large institutional money and corporate strategic investment tend to be the last money into a private company before going public.
But Bayer’s interest isn’t just in pre-IPO shares. The company also agreed to a research and development (R&D) deal with Recursion.
Per the agreement, Recursion will launch at least 10 new research programs, and Bayer will have the right to license any new therapies discovered through these programs. And if Recursion hits certain milestones with each program, it will be entitled to awards of more than $100 million from Bayer.
That’s big. We don’t normally see milestone payments that high. And that begs the question – what makes Recursion so special?
The answer is artificial intelligence (AI). Recursion uses a form of AI called deep learning to simplify and accelerate drug discovery.
Recursion’s AI can quickly comb through hundreds of thousands of compounds and molecular structures to identify novel therapeutic approaches to curing disease. This is bleeding-edge technology.
And that’s where Bayer comes in…
Like most legacy pharmaceutical companies, Bayer has decades’ worth of research in its archives. Bayer conducted this research manually over the years, looking for new ways to treat disease.
Bayer is going to have Recursion unleash its AI on these archives. And the AI will almost certainly pick up on opportunities that Bayer’s researchers missed. This will likely lead to new discoveries that Recursion can then develop as part of its 10 therapeutic programs.
And because a lot of the legwork has already been done, these programs will likely progress more quickly and at a lower cost than most new developmental programs. I can’t wait to see what comes of it.
Just as I predicted in my 2020 holiday series, this is the year that AI will discover a completely new drug therapy without human research assistance.
We already had an AI that discovered a new form of antibiotics earlier this year. And we can expect that Recursion will make similar progress over the course of the next year. My guess would be that it will discover at least a couple of new drug targets with its deep learning technology.
Looking forward, we are going to see some major breakthroughs next year from biotech companies using AI and deep learning. This is quickly going to become the standard drug discovery process in the industry.
So let’s add Recursion Pharmaceuticals to our early stage watchlist. I expect we will see this company go public or get acquired within the next 12 months.
Back in April, we talked about Facebook’s efforts to get a foot in India.
The social media giant invested $5.7 billion into Indian telecommunications company Reliance Jio hoping to buy influence in the country.
Why did Facebook want to break into India?
Easy. With a population of 1.3 billion people, India is one of the largest markets on Earth.
And it turns out that Facebook isn’t the only tech giant interested in India.
Amazon CEO Jeff Bezos is now in talks with Mukesh Ambani, who is the owner of Reliance Industries and India’s richest person. The talks involve Reliance’s retail business, which has brick-and-mortar infrastructure across the country. Ambani is open to selling a $20 billion stake in the operation.
And that’s music to Bezos’ ears.
Amazon would love to gain access to this infrastructure. That’s part of its backdoor strategy to breaking into the Indian market. With infrastructure in place, Amazon could then offer its own products to India’s 1.3 billion consumers. It’s a smart move…
This isn’t the first time Amazon has tried to break into a foreign market. Amazon had its sights set on China several years ago, and it set up operations in the country all by itself.
But Amazon faced heavy competition from Chinese companies like Alibaba. And locals were not keen to choose Amazon over its domestic competitors. Ultimately, Amazon learned the hard way about doing business in a dramatically different market. The same models don’t always apply everywhere around the world.
As someone who spent more than 20 years living and working in Asia, I was not surprised by this.
One of the most challenging parts of my job was explaining the nuances of Asian markets to Western executives. They tended to think that Asian countries weren’t doing business the “right” way or that their technological approach was backward… and that “they” would eventually come around to the Western way of doing things.
Of course, that’s a foolish mindset. Asian countries have remarkably different cultures that are anchored in thousands of years of history. Often, even the most basic working assumptions made by Western executives about a situation are fundamentally wrong.
To Amazon’s credit, it has learned to be more strategic this time around.
And by partnering with one of India’s biggest players, Amazon will have a favorable expansion into the country.
Reliance’s existing infrastructure will enable Amazon to quickly build out a logistics and distribution network inside the country. And that will open this enormous marketplace that continues to grow at a rapid pace.
Needless to say, this will be a fantastic deal for Amazon… if it gets done.
We’re already up 66% on Amazon (AMZN) in our Near Future Report portfolio in just under a year. And we’re sure to see those gains grow if this deal happens…
We’ve talked about CRISPR genetic editing technology many times in these pages.
To bring newer readers up to speed, CRISPR is like software programming for DNA. It allows us to “edit” genetic mutations that cause many diseases. Ultimately, genetic editing technology like CRISPR will help us cure all human disease of genetic origin.
CRISPR technology was discovered and developed by competing research institutions – UC Berkeley and the Broad Institute of MIT and Harvard. The lead CRISPR researchers from both institutions filed patent applications for the technology back in 2012.
The U.S. Patent and Trademark Office (USPTO) initially awarded priority for the foundational CRISPR patents to the Broad Institute. That prompted UC Berkeley to claim patent infringement, which has led to an intellectual property (IP) battle that has gone on for several years now.
But it looks like we may finally get a resolution…
The USPTO just rejected UC Berkeley’s infringement claims for the second time. And it granted Broad’s motion for priority benefit to its early CRISPR patents.
As a result, Broad is designated as “senior party,” while UC Berkeley remains the “junior party” for purposes of determining which entity was the first to invent CRISPR genetic editing technology.
This is great news for the industry and even for CRISPR companies associated with UC Berkeley.
Clarity on intellectual property ownership always removes uncertainty and reduces friction in any high-tech industry. That’s because it’s common for companies to license foundational IP.
This allows the entities who hold the patents to receive royalty payments for their research efforts. And it allows new companies to use the technology for unique and innovative purposes. Everybody wins.
So with clarity around the patent battle coming, we’ll start to see cross-licensing agreements happen among CRISPR companies.
That will allow the industry to get back to work developing CRISPR therapies that will one day cure the world of all human disease.
That is why the precision medicine trend is one we follow so closely in The Bleeding Edge and my other research services. CRISPR and biotechnology are going to revolutionize the field of medicine in our lifetimes.
And, of course, massive trends like these bring massive investment opportunities. We’ll see regular investors make big-time gains in this space in the coming months and years. And if you want the chance to find out my top biotech stock to own today, go right here for all the details.
Regards,
Jeff Brown
Editor, The Bleeding Edge
P.S. Speaking of legal issues in the tech world…
I have an ax to grind regarding what’s happened to the IPO market.
It used to be that the world’s best tech companies went public early, allowing normal investors to buy shares of these exciting startups on public exchanges. Amazon is the best example of this.
Amazon went public back in 1997 at a valuation of $381 million. That’s walking the line between being considered a micro-cap or a small-cap company.
And, of course, it’s been well-documented that Amazon wasn’t making any money at the time. Everyday investors had the chance to take a position in what was truly an exciting startup with an uncertain future.
And those who took a chance on Amazon’s IPO got incredibly rich. The stock has gone on to deliver gains as high as 180,000%. That’s enough to turn every $10,000 invested into $18 million. All on a publicly traded stock.
But the sad fact is that this isn’t remotely possible today. Average retail investors have been locked out of the best tech companies.
Sure, hot tech companies like Uber, Slack, and Zoom finally went public last year, giving retail investors a chance to buy shares.
But these were large-cap companies by the time they went public. While the media pumped them up as though they were hot startups, the reality is that insiders had already pocketed the big gains. Normal investors got the leftovers.
To me, that’s just not right. In fact, it’s borderline criminal.
More than five years ago, I set out to solve this problem. I wanted to find a way to deliver venture capital-like gains to normal investors – the people for whom 1,000% gains can be life-changing.
And I’m happy to say that I’ve found it. I discovered a secret class of “Penny IPO” stocks that go public 100–300 times cheaper than most tech stocks today. In fact, some of these Penny IPOs go public at levels even cheaper than Amazon did way back in 1997.
And best of all, these Penny IPOs are too small for Wall Street to take notice of them yet. We can buy these companies before the insiders get in.
Then, when they finally pop up on Wall Street’s radar, we can generate incredible returns. And that’s not a hypothetical – my first Penny IPO delivered gains of 432% in just 41 trading days.
These Penny IPOs are one of the last avenues that everyday investors have to generate life-changing gains from early stage companies. They are the closest thing I’ve found to “turning back the clock” to a time when retail investors could actually get in on the hottest tech start-ups, long before they changed the world.
I’ve been pounding this drum hard over the last week, and there’s a reason for that.
These Penny IPOs are heading for the “4X Window” right now. That is going to amplify their share price gains by a large margin. And I want my readers to take advantage of this little-known opportunity.
That’s why I’ve put together a presentation, which will happen on Wednesday evening, September 23, at 8 p.m. ET.
In it, I’ll reveal what the 4X Window is… and why these Penny IPOs buck the trend and go public so early. I’ll show how normal investors can buy them easily from their online brokerage accounts. And I’ll explain why they can surge hundreds of percent in days or even hours.
So for those who are looking for ways to invest in the hottest early stage tech companies on the market today, this is your ticket. Please join me on Wednesday night and I’ll show you how.
Simply go right here for all the details around my presentation.
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
