Doordash and Pizza Arbitrage

  Comments of the Day 19 May 2020     Video commentary for May 18th 2020   Eoin Treacy's view A link to today's video commentary is posted in the Subscriber's Area.  Some of the topics discussed include: Coronavirus vaccine news lifts risk assets. Bonds ease, the most troubled sectors rebound, gold eases, silver and platinum firm, liquidity dependent shares continue to hold breakouts.       Vaccine From Moderna Shows Early Signs of Immune Response This article by Robert Langreth for Bloomberg may be of interest to subscribers. Here is a section: “This is a very good sign that we make an antibody that can stop the virus from replicating,” Moderna Chief Executive Officer Stephane Bancel said in an interview. The data “couldn’t have been better,” he said. And By contrast, the mRNA technology being used by Moderna and several others relies on the body’s own cells to produce viral proteins. Once injected into the body, the RNA slips into human cells and tells them to make virus-like proteins, in this case the “spike” protein on the surface of the coronavirus. If the vaccine works, those proteins then trigger the body to generate protective antibodies. While the technology is new and hasn’t been used in an approved vaccine before, it allows researchers to move fast into trials. Moderna started working on its Covid-19 vaccine as soon as Chinese scientists put out the gene sequence for the virus in January. By late February, Moderna’s scientists had already delivered the first batch of candidate vaccines to researchers at the U.S. National Institutes of Health. In mid-March, the first healthy volunteer received a dose in the government-sponsored safety trial.   Eoin Treacy's view The coronavirus is a gift for the emerging one-shot genetic solutions field. Vaccines are a perfect testing ground for the technology because the virus demands a quick effective solution where one or two doses give immunity.     Doordash and Pizza Arbitrage This article by Ranjan Roy for themargins is a wonderful story of life imitating art. Here is a section: But he brought up another problem - the prices were off. He was frustrated that customers were seeing incorrectly low prices. A pizza that he charged $24 for was listed as $16 by Doordash. My first thought: I wondered if Doordash is artificially lowering prices for customer acquisition purposes. My second thought: I knew Doordash scraped restaurant websites. After we discussed it more, it was clear that the way his menu was set up on his website, Doordash had mistakenly taken the price for a plain cheese pizza and applied it to a 'specialty' pizza with a bunch of toppings. My third thought: Cue the Wall Street trader in me…..ARBITRAGE!!!! If someone could pay Doordash $16 a pizza, and Doordash would pay his restaurant $24 a pizza, then he should clearly just order pizzas himself via Doordash, all day long. You'd net a clean $8 profit per pizza [insert nerdy economics joke about there is such a thing as a free lunch]. He thought this was a stupid idea. "A business as successful a Doordash and worth billions of dollars would clearly not just give away money like this." But I pushed back that, given their recent obscene fundraise, they would weirdly enough be happy to lose that money. Some regional director would be able to show top-line revenue growth while some accounting line-item, somewhere, would not match up, but the company was already losing hundreds of millions of dollars. I imagined their systems might even be built to discourage catching these mistakes because it would detract, or at a minimum distract, from top-line revenue. So we put in the first order for 10 pizzas.   Eoin Treacy's view I had to smile when I read this article because it is almost the exact plot line from an episode of HBO’s Silicon Valley Mrs. Treacy and I watched over the weekend but from two years ago. Start-ups lighting money on fire is about as clear a sign of bubbly activity one might wish for.     Justice Department, State Attorneys General Likely to Bring Antitrust Lawsuits Against Google This article from the Wall Street Journal may be of interest to subscribers. Here is a section: Both the Justice Department and a group of state attorneys general are likely to file antitrust lawsuits against Alphabet Inc.’s Google—and are well into planning for litigation, according to people familiar with the matter. The Justice Department is moving toward bringing a case as soon as this summer, some of the people said. At least some state attorneys general—led by Texas Attorney General Ken Paxton, a Republican—are likely to file a case, probably in the fall, people familiar with the matter said. Much of the states’ investigation has focused on Google’s online advertising business. The company owns the dominant tool at every link in the complex chain between online publishers and advertisers. The Justice Department likewise is making Google’s ad technology one of its points of emphasis. But it is also focusing more broadly on concerns that Google uses its dominant search business to stifle competition, people familiar with the matter said.   Eoin Treacy's view The issue of Google abusing its power to give preferential treatment to some advertisers over others has been brewing for some time. The additional charge that the company actively censures free speech and anyone who does not agree with their view of the world is an additional challenge which will be tackled eventually.     Email of the day on what we can deduce from Warren Buffett's actions I would like to ask Mr Treacy the following question: Warren Buffet is currently holding relatively high proportion of Berkshire Hathaway holdings in cash. At the last shareholder meeting he cited the reason for not investing at this level as “The range of possibilities on the economic side are still extraordinarily wide,” Would you consider his comments (and more importantly actions - high cash position) confirming the fact that overall market is still very far off lows that it will eventually reach? Or he holds high proportion of cash in large part due his business model - funding investments with funds generated through insurance (which potentially have high payouts coming due to downturn)? Or perhaps that he plays mainly in private equity hence the investment objectives are not very closely related to indices such as S&P 500 and Nasdaq? I would very much appreciate your thoughts on this topic.    Eoin Treacy's view Thank you for this question which others may also be asking. The facts are Buffett has sold positions in airlines and greatly reduced positions in banks like Goldman Sachs and JPMorgan, insurance companies like Travelers and energy stocks like Philips 66. He boosted his position in PNC Financial Services Group.      Eoin's personal portfolio - Last updated March 27th   Eoin Treacy's view One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.