PIF Money's Going Home

Good morning.

Reminder: If you hear anyone handing out financial advice on TikTok, ignore them. 

JPMorgan Chase this week has already sued four customers who, inspired by a viral TikTok how-to post, allegedly stole thousands of dollars from its ATMs by taking advantage of an apparent technical glitch. The tactic: Customers would deposit very large fraudulent checks, and withdraw very large amounts of cash before they bounced. There's probably an army of influencers on TikTok ready to help them find a good lawyer.

Be it ever so oil-rich, there's no place like home.

Saudi Arabia's Public Investment Fund (PIF), the nation's enormous sovereign wealth fund, signaled on Tuesday that it's dialing down its investments outside the kingdom's borders, focusing instead on domestic investments. The news is sure to send a ripple of worry through Silicon Valley startup founders, as the PIF has been a money hose for US tech startups at a time when VC money has been harder to come by.

Domestic Bliss

The PIF started as a way for Saudi Arabia to reinvest money made from its natural oil reserves, but in the past decade or so has become a major part of the startup funding landscape. It teamed up with mega investor SoftBank, pouring $45 billion into the company's Vision Fund. Through that fund, Saudi Arabia backed Silicon Valley darlings, including Uber, DoorDash, Slack, and the ill-fated WeWork. This was all part of Saudi Crown Prince Mohammed bin Salman's campaign to present himself as a reformer set on overhauling and modernizing the Gulf nation's economy and culture. 

Silicon Valley grew briefly skittish about accepting Saudi Arabia's money following the 2018 murder of journalist Jamal Khashoggi, which the CIA said Bin Salman likely ordered, but the PIF has remained a major player in US VC investment. Now, however, overseas startups are going to have to look elsewhere for their funding:

• PIF governor Yasir Al-Rumayyan told the Future Investment Initiative Institute (a.k.a. Davos in the Desert) in Riyadh that the proportion of the PIF's investments that go overseas stands at 30%. "Now our target is to bring it down to a range between 18 to 20%," he said.
• Saudi Arabia has been trying to nurture a homegrown tech industry. In February, the Financial Times reported it was writing terms into deals with Chinese tech companies to strong-arm them into sharing technical know-how and training. It's also trying to jumpstart a domestic video game industry.

It's Saudi Arabia's way of saying it can't count on its prized commodity powering the PIF and the economy forever. The country gave up last month on trying to drive up the price of oil, and now question marks loom over just how sharply demand might start to ebb as the world turns to electrification. BP added to that fossil fuel gloom on Tuesday when its third-quarter profit hit a four-year low.

Still Besties: Despite its inward gaze, Saudi Arabia's link with SoftBank still appears to be going strong. On Tuesday SoftBank CEO Masayoshi Son offered a few scraps of information about a $150 million robot factory he plans to open in Saudi Arabia this December. Son said a future robot workforce will be a boon for humanity because "we are born crying and die crying [...] In between, we should be happy. We should let the robots do the work." And when the robots get into palliative care…?

Written by Isobel Asher Hamilton

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Coffee isn't mentioned anywhere in Made in China 2025, Beijing's state-led industrial policy to dominate strategic technology sectors. But Luckin Coffee is thinking big. 

China's biggest coffee chain is eyeing an American expansion that could undercut the market for $10 chai lattes, according to a Financial Times report. It's something of a comeback for Luckin, which was kicked off the Nasdaq in 2020 for an accounting scandal — and timed just as Starbucks is stuck in a rut.

Luckin Charms

Luckin was founded in 2017, and grew fast enough to IPO in the US by 2019. Just months later, it was caught inflating revenues, hence its Nasdaq ouster. But instead of fading into obscurity, the group booted its founder and fortified its position back home. At the time of the scandal, Luckin had roughly the same number of Chinese locations as Starbucks, around 4,000. It's since exploded, now outnumbering Starbucks' Chinese locations, around 20,000 compared to just 7,300. 

Last year, it generated sales of around $3.5 billion, surpassing Starbucks' China business for the first time ever. And starting next year, it wants to take the fight to Starbucks' home turf:

• The company plans to make waves in the US by offering competitive pricing, around $2 to $3 per cup of coffee, the FT reported, marking the latest shot in fast-dining's ongoing Value Wars.
• Sources also told the FT that Luckin will first launch in US cities with high populations of Chinese students, immigrants, and tourists. Eagle-eyed basketball fans may have already spotted Luckin advertising during NBA events.

Star-bust: The coming US invasion is just more bad news for Starbucks. Last week, the company reported a 25% drop-off in profits in its latest quarter. Its comparable store sales in the US fell 6%, and in China they plummeted 14%. It's been enough for new CEO Brian Niccol, who took the job in September, to declare his priority is restoring growth in the home market. His first order of business: simplifying the job for baristas. Starting Nov. 7, the chain will remove its olive oil-based Oleato coffee drinks, a Howard Schultz favorite, as well as toffee-nut syrup, according to an internal memo seen by Bloomberg on Tuesday. It's one Tall step toward fixing some Grande problems. 

Written by Brian Boyle

Thank goodness for outbreak amnesia. 

Three years after an unprecedented nadir for the cruise ship industry, Royal Caribbean has the wind in its sails — and they're blowing especially strong in one particular direction. The seafaring getaway giant raised its annual profit forecast for the fourth time this year on Tuesday. Driving the optimism is an actual secret getaway: a wildly profitable private island in the Bahamas that has other cruise ship operators going flank speed to get their own wonderland up and running.

Paved Paradise and Put Up an Amusement Park

In 2019, Royal Caribbean opened CocoCay, a tiny Bahamian island just under one mile long and only 480 yards wide that doubles as a beach resort complete with an amusement park, bars, and restaurants. The timing — one year before the world went into lockdown and the hospitality industry nearly shut down — wasn't great, but, five years on, the payoff has been.

Net income at the world's second-largest cruise operator rose to $1.1 billion in the third quarter from $1 billion a year ago, and analysts at investment bank William Blair expect the firm to notch a 20% increase in profit next year. One reason, they noted, is that owning your own island means no passenger fees like at regular ports, and no taxes. That's turned CocoCay into an asset where revenues have grown more 48% — versus a 41% jump in expenses — since its 2019 debut. Competitors want their own private getaways:

• To that end, Carnival has marked $600 million to develop a private island on Grand Bahama, dubbed Celebration Key. Norwegian Cruise Line is putting $150 million into a new pier for its own Bahamian island, Great Stirrup Cay.
• Not to be outdone, Royal Caribbean plans to open three more private destinations by the end of 2027, including a $650 million private resort in Mexico and a $165 million second resort in the Bahamas. Royal Caribbean has spent $250 million on CocoCay since it opened.

Above Board: Two years of unleashed desire for post-COVID travel have filled the pockets of the cruise ship industry with enough coin to weld a new hull. On the NYSE, Royal Caribbean shares are up 62% this year, Carnival 19%, and Norwegian 20%.

Written by Sean Craig

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