Weekly Reads - November 21, 2022
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Square and American Express are teaming up to provide small business users access to a credit card. This partnership helps expand Square past payment processing and into banking services adding more ways to monetize Square users. Square views credit cards as a way to cater to the “thin-file” merchants who are not be able to get credit outside of Square. The company leverages the information they get from card processing volumes to project future revenue and performance allowing them to offer loans and other credit services to users who may not qualify for traditional loans or credit. Offering credit cards are the next evolution of Square who is looking to be an all encompassing provider of financial services to its entire ecosystem. For American Express the Square partnership aligns with the company’s recent strategy of modernizing its network and creating partnerships with fintechs who want to “co-create” cards. The Square ecosystem touches millions of individuals and merchants across the world giving American Express access to users who previously may have never used an AMEX card before. This partnership will help both companies expand their reach and add new avenues to grow their top line.
Lockheed Martin and Microsoft have announced a historic agreement with Lockheed Martin being the first non-government entity to be part of Azure’s Government Secret Cloud. This could be a game-changer for Lockheed who could potentially speed up work on government programs with the ability to share information with U.S military customers. Lockheed will use Azure Secret Cloud for cybersecurity reporting and monitoring, mission workloads, testing, exercises, and modeling as well as centralizing collaboration which will help speed up contracts while maintaining strong governance. Azure will provide additional capabilities to Lockheed to help the continual development of secure, resilient communication systems that can link to existing DoD networks helping Lockheed develop stronger relationships with its core clients. Lockheed and Microsoft have also agreed to a two-year collaborative R&D program that will enhance AI/ML modeling and simulation capabilities for the DoD. This R&D program will attempt to create digital alternatives to military exercises that will reduce risk to service members and cut costs. With this agreement in place there is no doubt Lockheed is serious about transforming their business toward a digital future. With new capabilities and programs in place to help their military clients reduce costs and improve efficiency, Lockheed is increasing their competitive edge for future defense contracts. For Microsoft this is the ultimate marketing ploy with other defense customers likely to follow suite to replicate any advantages Lockheed might obtain by adopting Azure’s Secret Cloud.
Disney is handing the reigns back to Bob Iger after a disappointing tenure by exiting CEO Bob Chapek. Bob Iger who was Disney’s CEO from 2005 to 2020 has come back to the approval of investors who pushed company shares up 6% after the announcement. While shareholders celebrate the Iger hire the track record for CEOs returning for a second stint is not sterling. Overall, the stock performance led by CEOs who returned for a second stint was 10.1% lower during their tenure than companies led by first stint CEOs. The market has seen its fair share of second stint CEO failures with Xerox shares declining 60% when previous CEO Paul Allaire came back and Procter &Gamble Co seeing shares rise only 3% versus 26% for the S&P 500 during A.G Lafley’s two-year stint as CEO. Shareholders are hoping that the Bob Iger era follows the path of successful second stint CEO’s Steve Jobs and Howard Schultz. With a track record of 14% annualized returns during his first tenure, Bob Iger is coming back with immense pressure to turnaround Disney’s streaming business and manage the company through a potential recession. It remains to be seen whether the Bob Iger era will revitalize Disney or follow the path of disappointment shareholders have been accustomed to with second stint CEOs.