TheChek News Flow

1. X-energy, $500M, energy: A big raise from the nuclear reactor and fuel space this week. Rockville, Maryland-based X-energy raised a Series C-1 of approximately $500 million, anchored by Amazon. The company is developing advanced small modular nuclear reactors for clean energy generation. Amazon and X-energy are collaborating to bring more than 5 gigawatts of new power projects online across the United States by 2039. Founded in 2009, the company has raised more than $785 million, per Crunchbase.

2. Lightmatter, $400M, data centers: Lightmatter, a startup that uses light to link chips together and to do calculations for the deep learning necessary for AI, locked up a $400 million Series D led by new investor T. Rowe Price at a $4.4 billion valuation. The new round nearly quadruples its previous valuation of $1.2 billion in December after a $155 million raise led by GV — which along with Fidelity Management and Research Co. also participated in the new round. As Big Tech pours hundreds of billions of dollars into new AI data centers, Lightmatter is trying to solve the problems around energy consumption and scalability of those new centers. The company’s tech uses silicon photonics that can speed up processes while also using less power. Although the idea of using light in computing isn’t new, creating the components has historically been challenging. Founded in 2017, Lightmatter has raised $850 million, per the company. Lightmatter’s was not the only large raise by a photonic startup this week. Xscape Photonics — a New York-based startup also using photonics technology to address the energy, performance and scalability challenges of AI data centers — raised a $44 million Series A led by IAG Capital Partners with investment from the likes of Cisco Investments and Nvidia.

3. Splitero, $300M, fintech: Part of the beauty of being a homeowner is having equity in that home. Unfortunately, accessing that equity can sometimes be burdensome. San Diego-based Splitero offers homeowners another option to do just that and this week the startup locked up $300 million through a strategic investment from funds managed by Antarctica Capital to further that mission. Splitero offers homeowners a lump sum of cash in exchange for a share of their home’s future value. Founded in 2021, the company has raised nearly $318 million, per Crunchbase.

4. Terray Therapeutics, $120M, biotech: Los Angeles-based Terray Therapeutics, a biotech startup developing small molecule drug therapeutics, raised a $120 million Series B led by new investor Bedford Ridge Capital and existing investor NVentures. Founded in 2018, the company has raised $200 million, per Crunchbase.

5. Path Robotics, $100M, robotics: Path Robotics, a startup using AI in robotic welding systems in the manufacturing industry, announced it has closed $100 million in new investments in the past year led by Drive Capital and Matter Venture Partners. The Columbus, Ohio-based company currently has two robotic welding products in the market, both leveraging vision systems, artificial intelligence and machine learning to autonomously weld steel parts. Founded in 2018, Path has raised $170 million, per the company.

6. Skimmer, $74M, service industry: Austin, Texas-based Skimmer, a software provider for pool service businesses, raised $74 million in growth capital from Mainsail Partners. Founded in 2014, the company has raised $79 million, per Crunchbase.

7. Decagon, $65M, artificial intelligence: San Francisco-based company Decagon, a developer of AI customer support agents, raised a $65 million Series B led by Bain Capital Ventures. Founded in 2023, Decagon has raised $100 million, per the company.

8. Oshi Health, $60M, health care: New York-based Oshi Health, a virtual gastrointestinal care startup, raised a $60 million Series C funding led by Oak HC/FT. Founded in 2019, the company has raised nearly $120 million, per Crunchbase.

9. Koloma, $50M, energy: Denver-based Koloma, which identifies and commercializes geologic hydrogen resources, reportedly raised a $50 million Series B extension led by Osaka Gas and Mitsubishi Heavy Industries. Founded in 2021, the company has raised more than $386 million, per Crunchbase.

10. Galileo, $45M, artificial intelligence: Galileo, which provides generative AI evaluation and observability for enterprises, raised a $45 million Series B led by Scale Venture Partners. Founded in 2021, the San Francisco-based company has raised more than $68 million, per Crunchbase.

With Pfizer’s stock down sharply, an activist investor is pushing for CEO Albert Bourla to improve performance

When a novel coronavirus struck in early 2020, Pfizer’s PFE -0.17%decrease; red down pointing triangle chief executive, Dr. Albert Bourla, saw an opportunity to help save the world. He pushed the drugmaker to deliver a Covid-19 vaccine at lightning speed.

The Greek-born CEO’s bold bet paid off. The shot turned Pfizer into a household name, while ringing up tens of billions of dollars in sales. Bourla’s cellphone hummed with calls from leaders around the world. The experience, he said in a commencement speech afterward, showed the virtue of “setting ambitious goals that are seemingly impossible.”

But now Bourla is under attack because Pfizer’s stock price is way down, in part because it miscalculated demand for its Covid-19 vaccine, and some of the ambitious goals Bourla has set in the years since the pandemic have yet to pan out.

An activist investor is leading the charge. Starboard Value, a hedge fund that has waged fights in recent months against Autodesk, Salesforce and Tinder parent Match Group MTCH 1.05%increase; green up pointing triangle, recently took a roughly $1 billion stake in Pfizer. The sides held their first meeting on Wednesday, after Starboard accused the company of pressuring two former executives who had been working with Starboard to express support for Bourla.

It’s a moment of reckoning for Bourla, 62, a veterinarian by training who joined Pfizer in his early 30s from academia and moved all over the globe for the company as he climbed the corporate ladder.

Bourla enjoys strong support from Pfizer’s board of directors, according to people familiar with the board’s thinking. Members recognize Bourla’s success spearheading the Covid-19 vaccine, and steps he has taken to right the ship over the last year, including multibillion-dollar cost-cutting programs. The CEO has also reorganized the company, creating a separate cancer-drug research unit in a bet that breakthroughs there will bring in billions in new sales.

But Pfizer so far has been unable to escape its postpandemic slump. After the Covid-19 emergency receded, sales of the company’s vaccine and antiviral tanked, much more than executives forecast. New drug launches under-delivered. Pfizer’s first stab at the booming anti-obesity market flamed out.

Wall Street noticed, sending Pfizer stock down. Today Wall Street values Pfizer at roughly $166 billion, roughly half its peak during the pandemic.

Starboard’s campaign turned bitter fast. The investor was working with two now-retired Pfizer executives, former CEO Ian Read and former Chief Financial Officer Frank D’Amelio. Read had handpicked Bourla to be his successor. D’Amelio had worked alongside Bourla in the company’s C-suite.

Last week, Read and D’Amelio issued a statement expressing support for Bourla. Starboard publicly accused Pfizer of threatening lawsuits and other measures unless the pair made public statements of support. Pfizer has declined to comment. Read and D’Amelio did not respond to requests for comment.

Their involvement—even if fleeting—has made the activist fight personal for Bourla, who feels betrayed, according to people familiar with the matter. Bourla declined an interview request.

‘Everything is possible’

Bourla grew up in Thessaloniki, Greece, the nation’s second-largest city. The son of Holocaust survivors, Bourla has said his mother’s optimism was a big influence. She taught him to “never say ‘this is impossible.’ Everything is possible. Just have faith, believe and try,” he once said on a Bloomberg podcast. “That is something that put a stamp on me at a very young age”

His middle- and high-school education in Greece was heavy on the study of ancient philosophers. But he also had a love of both medicine and animals, he told the Leadership Matters podcast in 2022, and decided to study veterinary medicine.

He earned a doctorate in the biotechnology of reproduction from the Veterinary School of Aristotle University in Thessaloniki. He was doing animal-health research at Aristotle University in 1993 when a recruiter convinced him to take a sabbatical and try working at Pfizer in Athens. “I wish I could say it was a vision that drove me to Pfizer,” he joked during a talk at the University of Oxford’s business school last year. “It was a salary that I couldn’t resist.”

Bourla, who relocated his family eight times and lived in five different countries while working for Pfizer, arrived in New York—where the company is based—in 2001. He played key roles in the successful launches of breast-cancer drug Ibrance and bloodthinner Eliquis, medicines now among the company’s bestsellers. Bourla, who keeps photos of Pfizer patients in his office, rose to oversee the company’s cancer, heart and other innovative drugs before taking its helm in 2019.

“On the day I was named CEO,” Bourla wrote in his 2022 book, ‘Moonshot,’ “the Pfizer board of directors called me into a conference room…. I thanked them, smiled, and said aloud, ‘Only in America!’ Only in America could a Greek immigrant with a thick accent become CEO of one of the world’s biggest corporations.”

Soon after becoming CEO, Bourla took company leadership on a Silicon Valley tour, visiting tech giants including Google, Apple and Salesforce to understand their recipes for success. “Companies that stay true to their purpose perform much better,” Bourla said in an interview afterward.

The visit helped shape Bourla’s decision to double down on Pfizer’s bet on innovative medicines.

After roughly eight months at the helm, Bourla struck a deal to hive off Pfizer’s off-patent drugs business and merge it with generic pharmaceutical company Mylan. He also guided Pfizer’s plan to spin out its division selling medicine-chest staples, such as Advil and vitamins, to combine it with GSK’s own consumer-health business. It’s now a separate public company called Haleon.

The moves left Pfizer a leaner company that could grow sales faster if its innovative drugs in development panned out, but cost Pfizer steady cash flow.

“He’s willing to take calculated, smart risks,” said Dr. Scott Gottlieb, a former U.S. Food and Drug Administration commissioner who is now a Pfizer board member. “Covid is obviously the best example of this.”

After Covid-19 emerged, Pfizer partnered with Germany’s BioNTech to use its then-unproven gene-based vaccine technology, called mRNA, to develop a vaccine. Bourla urged his company’s researchers to work fast. When he assembled his executive team via videoconference in March 2020, he told them he wanted a vaccine ready by the fall—an ambitious request given the typical shot takes more than a decade to develop.

Inside Pfizer, the vaccine program was dubbed “Project Lightspeed.”

Before it was clear whether the vaccine would work, Bourla also pressured Pfizer manufacturing staff to ramp up capacity to make the shots. It was a huge, risky commitment. Bourla sought the company’s board of directors’ approval to spend more than $1 billion on the buildup.

Among those inside the company who opposed such a large outlay was D’Amelio, then the CFO, according to people familiar with the matter.

Then Bourla doubled down on the manufacturing bet. During one of Pfizer’s twice-weekly meetings on the project, in summer 2020, he told the team he wanted them to increase commercial production at least 10-fold. “Why can’t we make more and why can’t we make it sooner?” Bourla demanded.

“What we’re doing already is a miracle,” Mike McDermott, Pfizer’s manufacturing boss, said he responded.

‘Always aim high’

Bourla’s pandemic parlay resulted in Pfizer quickly shipping billions of vaccine doses around the world. The company’s stock soared as it reaped more than $100 billion in sales in 2022.

“Setting ambitious goals that are seemingly impossible based on conventional wisdom does not restrain human ingenuity. It liberates it. That’s why you should always aim high,” Bourla told graduates during a 2022 commencement speech at the Technion Israel Institute of Technology.

But the company’s pandemic success obscured long-term issues at Pfizer. Some of its top-selling drugs, such as arthritis treatment Xeljanz, are getting older and nearing the loss of patent protection, when lower-priced generics can compete. Pfizer must find new sources of sales to fill the holes.

Bourla knew this and used the company’s pandemic cash windfall to go on an acquisition spree, hunting for Pfizer’s next big hit. He bought Arena Pharmaceuticals for $6.7 billion, in a bet on the bowel-disease drugs it had in development. He landed sickle-cell disease drug developer Global Blood Therapeutics for $5.4 billion. He acquired the rest of Biohaven Pharmaceutical Holding that Pfizer didn’t already own for about $11.6 billion, which provided a new migraine drug. And, in his boldest bet of all, he paid $43 billion down for cancer-drug biotech Seagen last year, doubling the size of Pfizer’s oncology pipeline.

Some analysts and investors have said Bourla overspent on those acquisitions, some of which have yet to bear fruit. Pfizer recently pulled a sickle-cell disease drug, Oxbryta, from the market. The launch of the migraine drug, Nurtec, started slowly.

A closely watched pill in development for treatment of obesity disappointed during testing, setting back Pfizer’s efforts to join one of the pharmaceutical industry’s hottest markets. Pfizer is now advancing another version of the anti-obesity drug.

Some of Pfizer’s R&D programs “haven’t worked out. It’s the nature of the business. A lot have,” Gottlieb said. “In this business you have to be willing to lean forward.”

Indeed, the company secured nine new drug approvals last year, including respiratory vaccine Abrysvo and multiple-myeloma treatment Elrexfio.

Still, David Risinger, a Leerink Partners analyst, forecasts that Pfizer’s revenue will decline between 2025 and 2030. He said it’s possible the company’s pipeline is developing drugs Wall Street is undervaluing, but it will take time for that to play out.

Predictions like that have opened the door for the activist push by Starboard. Starboard is expected to lay out its issues with the company’s recent direction at a conference called the 13D Monitor Active-Passive Investor Summit on Tuesday. The activist-investing firm declined to comment.

Bourla’s defenders say the CEO is operationally astute, in addition to being bold, and his acquisitions, cost-cutting and reorganization have positioned the company for a turnaround. They point to the company’s last two quarters of performance as evidence of improvement, and say third quarter results, if they prove strong, could bolster Pfizer and Bourla further.

Long a fascination of engineers, electrostatic motors are in testing and have massive potential

A technology pioneered by Benjamin Franklin is being revived to build more efficient electric motors, an effort in its nascent stage that has the potential to be massive.

A handful of scientists and engineers—armed with materials and techniques unimaginable in the 1700s—are creating modern versions of Franklin’s “electrostatic motor,” that are on the cusp of commercialization. It’s reminiscent of the early 1990s, when Sony began to produce and sell the first rechargeable lithium-ion batteries, a breakthrough that’s now ubiquitous.

Franklin’s “electrostatic motor” uses alternating positive and negative charges—the same kind that make your socks stick together after they come out of the dryer—to spin an axle, and doesn’t rely on a flow of current like conventional electric motors. Every few years, an eager Ph.D. student or engineer rediscovers this historical curiosity. But other than applications in tiny pumps and actuators etched on microchips, where this technology has been in use for decades, their work hasn’t made it out of the lab.

Electrostatic motors have several potentially huge advantages over regular motors. They are up to 80% more efficient than conventional motors after all the dependencies of regular electric motors are added in. They could also allow new kinds of control and precision in robots, where they could function more like our muscles.

And they don’t use rare-earth elements because they don’t have permanent magnets, and require as little as 5% as much copper as a conventional motor. Both materials have become increasingly scarce and expensive over the past decade, and supply chains for them are dominated by China.

These motors could lead to more efficient air-conditioning systems, factories, logistics hubs and data centers, and—since they can double as generators—better ways of generating renewable energy. They might even show up in tiny surveillance drones.

Out of the lab in Wisconsin

Leading the effort to resuscitate Franklin’s concept for motors big enough to use in industrial applications is C-Motive Technologies in Middleton, Wis. It is a 16-person startup founded by a pair of University of Wisconsin engineers named Justin Reed and Daniel Ludois who spent years tinkering with electrostatic motors to see if they could be improved.

They’re reaching out to companies, hoping to get their motors out into the real world. So far, FedEx and Rockwell Automation, the century-old supplier of automation to factories, are among those testing their motors.

“In motor technology, this is unique,” says Kyle Crum, director of advanced technology Rockwell, which has made a small strategic investment in C-Motive, and is testing the company’s motors in one of its laboratories.

“Other motor technologies are kind of iterations on a theme, but they all work on the same physics,” he adds. “This is turning everything on its head. I don’t use the term ‘disruptive technology’ lightly, but this could be that. It could change the game.”

FedEx Supply Chain is testing the motors in conveyors at a distribution center near Fort Worth, Texas, says Mark Crowley, the automation technician at the site.

Electric motors 101

Conventional electric motors come in many types, but they all work by transforming a flow of electricity into motion. Picture the high school science experiment of wrapping copper wire around a nail. Current running through that coil can make the axle of a motor spin—or the process can run in reverse, yielding a generator. In a conventional electric motor, the movement of electrons induces a force that makes it go.

Electrostatic motors, for which the basic principle hasn’t changed since Franklin built the first practical example, are different. The force in these motors comes not from the movement of electrons but from the attraction and repulsion between negative and positive charges in components—the same type of static charge that gives you a shock when you touch a doorknob after shuffling across the carpet in winter.

Franklin’s original model—which he first demonstrated to the public in 1749 as a rotisserie to cook a turkey—is an illustrative example.

Rather than being pushed by a continuous electromagnetic field, the axle of Franklin’s motor included brass sewing thimbles that had their charge reversed as they passed one of four glass jars that store electric charge, one at each corner of the device. This meant every thimble had either a positive or negative charge, and was therefore attracted to the next glass jar and repelled by the one it just passed.

This is an ingenious way to turn electricity into motion, but it has a major flaw: It relies on air as the insulator keeping the positive and negative charges separated. Air is only so-so at this, which means that a Franklin-style electrostatic motor big enough to do useful work in industry would be weak and inefficient.

C-Motive’s founders discovered that a number of technologies had matured enough that, when combined, could yield electrostatic motors competitive with conventional ones. These enabling technologies include super fast-switching power electronics—like those in modern electric vehicles—that can toggle elements of the motor between states of positive and negative charge very quickly.

But the secret sauce of C-Motive’s motors is, in a sense, an actual secret sauce. Dogged exploration of combinations of various readily available industrial organic fluids led to a proprietary mix that can both multiply the strength of the electric field and insulate the motor’s spinning parts from each other—all without adding too much friction—says C-Motive Chief Executive Matt Maroon.

The biggest challenge to this new technology is the same that faces many other radical new ones—there’s already a huge infrastructure devoted to the existing technology, making companies reluctant to switch to something new, and relatively untested and costly, says James Edmondson, research director at emerging-technology analysis firm IDTechEX.

Electrostatic motors also require much higher voltages than traditional motors, which means they require a different kind of power electronics to feed current to the motor, potentially adding to the cost of the total system, he adds.

Micro drones

Electrostatic motors are inherently efficient because they don’t lose energy to the process of moving current around like a conventional motor, says Mingjing Qi, a professor of electrical engineering at Beihang University in Beijing. But until recently engineers didn’t have a very good understanding of how to optimize their efficiency, he adds.

A team of scientists led by Dr. Qi worked for six years to design an electrostatic motor light and powerful enough for a small, solar-powered drone. Their eventual goal is drones the size of insects, that can fly as long as sunlight shines on them, while carrying a payload that includes a tiny camera.

Electrostatic tech isn’t suitable for fast-spinning motors like those in the powertrains of electric vehicles and conventional drones, says C-Motive’s Maroon. But if they prove compelling in industrial applications, it’s possible that some systems that are currently designed for conventional motors could be redesigned to use electrostatic ones, such as home heating and cooling systems.

“With any startup and any new technology, there’s a bunch of ifs,” says Crum, of Rockwell Automation. “But we’re talking about fans, pumps, servos for robots, conveyors—just drive down the road, and every industrial facility you see has these. Just the electrical efficiency you could gain from these alone is gigawatt after gigawatt, if widely adopted.”

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When they’re not inventing sentient chatbots, tech giants have a new obsession: nuclear power. This week, Alphabet’s Google and Amazon.com both announced investments in new kinds of reactors.

It’s the latest sign that nuclear energy is making a comeback, some 50 years since the technology was last considered a growth industry. The trend had already lifted the stocks of companies that own reactors, including Vistra and Constellation Energy.

But the Google and Amazon deals signal a new phase where companies could actually build new nuclear reactors. As a result, a separate group of stocks has begun to rise—companies that are designing, building, and fueling novel kinds of nuclear generators—and they could keep gaining. That includes Nuscale Power, Oklo, BWX Technologies, GE Vernova, Lightbridge, and Centrus Energy, all of which rose this week.

On Wednesday, Amazon said it would finance the construction of several small nuclear reactors in Washington state and invest in Maryland start-up X-energy, which will build the reactors. The news came after Alphabet’s Google announced on Monday that it had made a deal with privately held Kairos Power, a California-based developer of small nuclear reactors, to support the development and construction of several reactors. Financial terms weren’t released, but Kairos expects to get the first reactor up and running by 2030 and potentially build several more by 2035.

The tech giants are looking for ways to secure power for their data centers, which are consuming more electricity as artificial-intelligence usage grows. The firms say they want to reduce their carbon footprints to slow global warming, and executives think nuclear fits the bill. Nuclear plants don’t emit carbon and operate continuously, unlike solar and wind.

The biggest obstacles for nuclear adoption are that reactors take a long time to build and can be very expensive. A big one with 1,000 megawatts of capacity is likely to cost more than $10 billion, and the last set of reactors went an estimated $20 billion over budget.

The new kind of nuclear plants built by Kairos and X-energy are known as small modular reactors, or SMRs, and they’re supposed to be cheaper and easier to construct. They produce about one-tenth as much power as the behemoths that exist today, and are called “modular” because they’re designed to be built by factories in pieces.

Only three SMRs exist in the world today, and none are in the U.S. But there could be dozens by the 2030s. Congress passed a law this year meant to speed up approval of new SMRs, and the Biden administration said it would invest $900 million into helping companies build small reactors. The Inflation Reduction Act contains vital support for nuclear, too.

It’s not easy to invest directly in the trend. Kairos and X-energy are privately held, but two other SMR developers are publicly traded. Oklo, whose chairman is OpenAI CEO Sam Altman, completed a SPAC merger earlier this year. Another player is Nuscale, which is the only SMR developer to have received approval for its design from the Nuclear Regulatory Commission.

Other nuclear companies, including Westinghouse, which is owned by Brookfield Asset Management and uranium miner Cameco, and nuclear equipment provider BWX Technologies have designed SMRs. GE Vernova, GE’s publicly traded energy spinoff, is working on deploying SMRs in Canada. Investors can also buy uranium enrichment company Centrus Energy and nuclear fuel company Lightbridge, which works with Nuscale.

Until these new plants get off the ground, the trade should be considered speculative. Other U.S. nuclear “renaissances” have petered out because of costs or safety concerns. But with Big Tech and government joining forces, this one is looking more likely by the day.

The online travel agent has gotten more efficient even while trading at half the multiple of its competitor.

Although it has had a rough year, Expedia Group could be an investor’s ticket to paradise. A report that Uber Technologies has looked into purchasing the online travel agent only makes the case stronger.

Expedia, whose bread and butter is matching people with empty hotel rooms, has made something of a round trip in 2024: The stock crashed in early February following mixed quarterly results, lackluster guidance, and the departure of CEO Peter Kern. While Kern had led the company through the tumultuous pandemic period, investors grew impatient as they waited for his transformative strategy to unfold.

The results looked even worse when compared with Priceline owner Booking Holdings, which has returned 20% annually over the past three years to Expedia’s annual loss of 4.2%. Only recently has Expedia stock climbed back to where it started the year.

Signs of improvement under new CEO Ariane Gorin are already visible, with the company targeting increased market share for its Expedia, Hotels.com, and VRBO brands, says Naveen Jayasundaram, a senior analyst at ClearBridge Investments, as well as improvements in efficiency and sales growth. Its overhaul puts it in position to play an impressive game of catch-up with Booking. “Expedia is a business in the midst of a turnaround,” Jayasundaram says. “There are early signs of progress.”

In recent months, Uber has discussed a potential bid for Expedia, according to the Financial Times. Uber CEO Dara Khosrowshahi was previously the CEO of Expedia and remains on its board.

Expedia, of course, rises and falls with travel spending. Though travel demand is down from the immediate postpandemic frenzy, it’s still at remarkably high levels. Domestic and international air traffic in the first half of the year was back in line with 2019 levels, and nearly five million more people will set sail on cruises in 2024 than they did in the year before the pandemic.

While bears worry that hotels, unhappy about forking over a percentage of profits to other sites, could fight back, as airlines have done in the past, the vast majority of hotels are owned by small operators that don’t have the same clout. Tech behemoths aren’t a big worry, either. While investors have fretted that Google parent Alphabet will use its considerable resources to muscle out smaller online travel services, it hasn’t been able to crush its rivals.

“The more fragmented the industry is, the harder it’s going to be for [competitors], even Google,” says Christopher Conway, a senior portfolio manager at GYL Financial Synergies.

The new travel normal has also brought more novice users online looking for hotel and airfare bargains. They are less likely to be brand loyal and intent on booking directly with providers, and tend to turn to online travel agents as a one-stop shop. Increasingly, that means Booking and Expedia, which enjoy a near duopoly, controlling roughly 42% of global bookings, according to travel industry firm Skift.

“There isn’t going to be just one winner here,” says Jay Aston Jr., a portfolio manager on Neuberger Berman’s global equity megatrends team. “Booking does a good job, but Expedia has a pretty fantastic platform.”

And one that has gotten better. As painful as the pandemic was for online travel agents—and the industry as a whole—it allowed Expedia to rapidly integrate the numerous brands it had acquired in the prepandemic years into a more streamlined platform, giving it a chance to maximize the value of its data and capture the benefits of scale. Those changes have helped it generate $1.3 billion in free cash flow in the most recent quarter, up 42% from the year-ago period, leaving the stock trading at 8.4 times free-cash-flow estimates for the next 12 months, about half Booking’s 16.2 times and a third of the S&P 500 index’s 25.6 times.

“A more unified platform will allow Expedia to generate significantly more meaningful cash flow, and there’s a lot more operating leverage to come,” says Aston. “If you look at free cash flow, it’s wildly undervalued.”

And not just on free cash flow. Expedia trades for just 11 times forward earnings, half of Booking’s 22 times—simply too cheap for what Dan Ahrens, managing director and portfolio manager at AdvisorShares, calls a “blue-chip travel stock.”

And it isn’t for a lack of growth. Analysts predict earnings per share to climb 21.5% this year, to $11.78, and another 20% in 2025, to $14.18—and on about 7% revenue growth for each year. Earnings will get a boost from VRBO, which showed a promising rebound in the second quarter as it benefits from the company’s recently launched One Key loyalty program. In addition, Expedia’s business-to-business division, in which other travel players fulfill their orders through Expedia’s inventory, has also been growing. The company will report third-quarter results on Nov. 7, when it will have another chance to show that its initiatives are working.

“Expedia is probably interesting here, relative to Booking, since the valuation is more attractive—we like that,” says Randy Hare, director of equity research at Huntington National Bank. “Their estimates seem doable…we could see decent growth and upward movement.”

Sure, it may still not be cheap to book a vacation, but at least Expedia looks like a bargain.

Tough luxury market dims Dior’s shine

Sales stutter at LVMH brand run by Bernard Arnault’s daughter Delphine as luxury downturn deepens

At one of Shanghai’s most exclusive malls, a Dior store is spread across four floors and includes special tea rooms for premium shoppers, in a market that was once associated with rapid growth for luxury brands.

But on Thursday afternoon there were few customers despite it being launch day of the French company’s new spring collection in China.

“You can’t compare it to before,” said one assistant. “The entire market is like this”.

Chinese consumers helped drive an unprecedented boom in the global luxury sector in recent years but a deepening slowdown in the crucial market is now taking its toll on some of the sector’s biggest names.

Shares across the industry dropped this week after Dior owner LVMH, the world’s biggest luxury group, reported a fall in third-quarter sales on the back of weakening Chinese demand. 

Sales in LVMH’s core fashion and leather goods division — the industry bellwether that houses top brands including Louis Vuitton and Dior — fell 5 per cent, the first contraction since the start of the Covid-19 pandemic in 2020 and worse than consensus expectations.

“If you look at growth rates from 2021 to 2023 . . . eventually something has to give. It’s not sustainable. So you have this very, very fast normalisation, and I think the problem at this time is Dior,” said Flavio Cereda, luxury investor at GAM. 

“Louis Vuitton is holding up OK — not great, but it’s an amazing brand. The rich, the poor — they’ve managed to make products for everyone. But Dior has now become more difficult.”

That presents a challenge for Delphine Arnault — the eldest child of LVMH’s billionaire owner and chief executive Bernard Arnault — who took over as Dior CEO at the start of last year following a period under her predecessor Pietro Beccari when the brand’s sales grew fourfold to about €10bn, according to HSBC estimates. 

LVMH does not release financial data on the performance of individual brands. But chief financial officer Jean-Jacques Guiony said Louis Vuitton’s sales in the quarter had been “a little bit above the average” in the fashion and leather goods division, “while Dior is a little bit below”. 

People familiar with the performance say Louis Vuitton sales were down by low single digits, while Dior’s decline was in the low double digits. Smaller Fendi, which had an estimated €2.5bn in sales last year, is also facing a drop in revenues, the people said. 

“While Louis Vuitton and Dior have tended to trend similarly previously, we see quite a dichotomy now,” analysts at HSBC wrote, adding that “the success of [smaller brands] Loro Piana, Loewe and Rimowa will have been negated by declines in other parts of that portfolio.”

LVMH and Dior declined to comment.

The world’s biggest luxury group with a market value of €312bn, LVMH owns almost 100 brands ranging from hotel chains to perfumes, but Louis Vuitton — a megabrand with roughly €22bn in annual sales — and Dior are the two biggest contributors to profits. Together they accounted for about 65 per cent of group earnings before interest and tax last year, according to HSBC.

LVMH is not alone in facing tougher times as the industry adjusts after years of record growth, but is faring better than some peers. In central Shanghai, Burberry and Gucci stores were also quiet at the same downtown shopping complex.

Another Dior store in the city’s financial district had more customers for the new collection, although an assistant at one of the company’s make-up stalls elsewhere in the city said footfall was down 20 per cent and that they had reached out to repeat customers to drum up business. 

Shares in LVMH rival Kering are down more than 40 per cent this year after a series of profit warnings, a rarity in the sector. Sales at its flagship brand Gucci are expected to have fallen 23 per cent year-on-year when the group reports third-quarter revenues next week, according to Barclays. 

But within LVMH, Dior now faces the challenge of forging a path forward under a new chief executive after a period of turbocharged growth.

“There is some resetting happening,” said one luxury financier, adding that Delphine Arnault’s “energy is not the same” as Beccari’s, and “she’s coming into something that is perhaps a bit stressed after being milked for growth”. 

Beccari, now chief executive at Vuitton, transformed Dior by moving it into new categories and gaining market share across women’s and men’s fashion, leather goods, jewellery and homeware.

During his time at Dior, he was “all about volume, being aggressive, and is very very good at that”, said Cereda at GAM. “But exceptionally strong growth also came from excessive price increases as we saw at Chanel.”

Average prices for luxury goods tracked by HSBC have risen 50 per cent since 2019. Dior has raised them the most, according to Bernstein analysis, pushing up like-for-like price tags on “evergreen” products by more than 60 per cent between 2020 and 2023.

“At some point in the consumer’s mind, the absolute numbers just don’t make sense,” said the luxury financier. For the industry as a whole “you can no longer just grow through price” — particularly at top brands such as Dior and Vuitton that are now so big that they need to look beyond the ultra-wealthy for sales. 

Delphine Arnault has been focused on “long-term desirability”, a person close to her said, investing in the Dior brand through big destination runway shows — such as a recent one in Scotland — and dressing stars from Céline Dion to Lady Gaga at the Paris Olympics opening ceremony.

Industry players say a recent investigation by Italian authorities into poor labour conditions at factories working as subcontractors for brands including Dior and Armani has had little impact on customers, but that Dior faces broader questions about the quality of some items particularly in light of the scale of price increases.

“We’re already at a price point where affluent customers have problems with spending power, and there is an issue with the price point at Dior,” said another person close to the group. 

Analysts at research firm Third Bridge also note that Dior — where Maria Grazia Chiuri has been creative director since 2016 — has not launched a new blockbuster bag since the “book tote” hit the market more than three years ago.

“Handbags are the cornerstone of luxury brands, as they are often the most prominent and lucrative category,” said Third Bridge analyst Yanmei Tang. “The lack of relevance with customers in the handbag segment appears to be part of a broader issue affecting Dior’s product line-up.”

A person close to Delphine Arnault said recent launches such as the Toujours bag released six months ago were performing well. Under her leadership the brand has also increased the number of bags it includes in Chiuri’s runway shows to build out the key product offering, with a focus on appealing to the brand’s highest-end clientele. “This is where most of Dior’s growth is coming from,” the person said.

For luxury’s biggest brands, sustaining momentum is a challenge once a certain scale has been reached.

After €10bn in sales, “you need an exceptional storyline, heritage and product for a lot of different customers while managing the dilution of exclusivity”, said Cereda. “Walking around any Dior megastore quickly flags what the challenges are today.”

Lower-ranking creditors complain to utility they have been cut out of restructuring negotiations

Thames Water’s battle for survival intensified on Friday when debtholders fell out over a proposed £1.5bn emergency loan and restructuring plan that would help the UK’s largest privatised water utility stave off financial collapse by Christmas.

The crisis-struck company, which provides water and sewerage services to about 16mn households in south-east England, is struggling under a £19bn debt load and has faced lukewarm demand for an attempt to raise as much as £3bn in equity from infrastructure investors.

On Friday, a group of creditors wrote to Thames Water complaining that they had been cut out of negotiations around a new loan to prevent a cash crunch at the utility, which has warned that it risks running out of readily available liquidity shortly after Christmas.

These creditors, which hold some of the lower-ranking bonds, have hired heavyweight litigation law firm Quinn Emanuel to represent their interests, after a large bondholder group ejected them on Thursday.

“Our clients are concerned that [Thames Water] and its advisors appear to be close to launching a restructuring plan without having consulted an important creditor constituency,” Quinn Emanuel wrote to Thames Water’s legal advisers on Friday evening.

Thames Water declined to comment.

The dispute raises the stakes in the company’s bid to avoid financial collapse, given the sheer numbers of creditors that need to reach agreement on any proposal. It risks being renationalised under the government’s special administration regime if it cannot agree a restructuring with debtholders.

The creditors behind Friday’s letter include hedge funds, banks and insurers, according to people familiar with the matter, and represent a significant portion of Thames Water’s £1.4bn of class B debt. They stand to take heavy losses or have their bonds wiped out should the company be renationalised. The class B bonds were trading at less than 20p in the pound on Friday, reflecting their low recovery expectations.

Holders of these lower-ranking bonds were ejected earlier this week from Thames Water’s largest creditor group of more than 100 institutions, which owns more than £10bn in bonds.

Some of this group’s remaining class A debt holders have been negotiating a restructuring plan and emergency loan of at least £1.5bn that would rank ahead of all existing debt, according to people familiar with discussions.

This group’s advisers warned the class B holders on Thursday of a “significant risk of a conflict of interest” emerging between them and higher-ranking class A holders. Thames Water has about £16bn of class A debt outstanding, and this would rank ahead of class B holdings in a special administration or insolvency.

The largest holders within the class A bondholder group have been negotiating with Thames Water around a “new money” loan with an aim of formally proposing terms in the coming weeks, according to people close to the discussions.

“It is clear that negotiations with a single creditor group cannot lead to the objectively best available deal for [Thames Water],” Quinn Emanuel’s lawyers wrote on Friday. “It is also critical that any new money contribution is not structured in such a way that limits the runway for an equity-raising process.”

The letter also claimed that the class B holders would be able to “contribute significant new money” to Thames Water and could potentially “provide funding on competitive and potentially attractive terms”.