Aramco A Go-Go

Michael Wenner
Nov 22nd, 2019
(Credit Axios)


"I know they hating on me, cause I'm the man. I'm to trill homie, I don't give a damn. I'm a self-made trillionaire. I'm a self made trillionaire." - T-Pain.

Selling oil isn't exactly the sexiest business in the world. As a matter of fact, it's quite the opposite. Regardless, people start businesses to make money and one company in particular is better than everyone else in that regard.

That company is Saudi Aramco, officially the Saudi Arabian Oil Company. Aramco has both the world's second-largest proven crude oil reserves and second-largest daily oil production.

It's by far the world's most profitable company and the competition isn't even close. Aramco reported more than $110 billion in net income last year. That's almost more than double Apple's $59 billion in net income, which makes it the world's second-most profitable company.

To illustrate just how profitable Aramco is, the company actually saw net income drop by more than $6 billion year over year in the first half of 2019. The $46.9 billion it reported in the first six months of this year is still nearly as much as Apple reported all of last year.

Aramco is 100% owned by the Government of Saudi Arabia. That is about to change, though, as the Saudi government will list 1.5% of Aramco, or 3 billion shares, in an initial public offering. The Aramco IPO has been a long time coming. The idea was floated as far back as 2016 but was repeatedly delayed. 

Aramco set an initial price this past Sunday, giving it a valuation of $1.7 trillion. Despite falling below the $2 trillion valuation Saudi Crown Prince Mohammad bin Salman believed it to be worth, it would still come to market as the most valuable company in the world. For comparison, Apple and Microsoft are both worth about $1.1 trillion. The IPO will also likely exceed Alibaba's $25 billion IPO in 2014, which was the largest in history. 

Despite Aramco cancelling plans to market the IPO internationally, demand appears to be quite strong. Subscriptions for the IPO have already reached nearly $19.5 billion, in just five days.

Samba Capital, one of the banks managing the deal, said "Retail and Institutional subscription levels for the first five days of the offering have reached unprecedented scale, demonstrating the confidence of investors in Saudi Aramco."

Aramco's final pricing will take place on December 5 with trading beginning shortly thereafter on Tadawul, the Saudi Stock Exchange. The IPO is only available to investors permitted to invest in the Tadawul.

So why would the Saudi government want to sell a stake in Aramco if it's so profitable? Selling a stake in Aramco will help the Kingdom generate funds for its "Saudi Vision 2030" plan. The goal of the plan is to reduce Saudi Arabia's dependence on oil, diversify its economy, and develop public service sectors.

You know what's cool? A trillion dollars - J.T.

It’s hard to argue reducing their dependency on oil is anything but a smart decision. They likely see the writing on the wall and want to start selling shares before it’s too late. Saudi Arabia lost its title as the world’s largest oil producer to the United States last year. Also, a recent report even claimed the company faces serious long term risks from global warming.

While the Aramco IPO is pretty boring compared to technology companies with all the buzzwords, at the end of the day no other company is able to print money like they can. Aramco wants investors who like to make money. The company even committed to a minimum dividend of $75 billion per year through 2024. 

With demand strong heading into the IPO, Aramco may alter plans to offer additional shares, potentially even in the U.S. In the meantime, it’s likely to become the world’s first $2 trillion publicly traded company, beating Apple, Amazon and Microsoft. 

Let's not forget about the Jamaal Keshogi. The Saudi native and U.S. resident was brutally murdered at the direction of MBS. As Dan Primack wrote: 
On the political side, President Trump pledged "to get to the bottom of it," and Secretary of State Mike Pompeo promised to "hold all of those responsible accountable." Neither of those things happened. Nor has the White House publicly affirmed an 11 month-old CIA assessment that Saudi Crown Prince Mohammed bin Salman (MBS) ordered the assassination.
To learn more about how MBS came to power, his plans for modernization through the Aramco IPO, failed promises of reformation, I recommend Frontline's The Crown Prince of Saudi Arabia. 

Funnest Funding Rounds of the Week

The days of clipping coupons are over. PayPal has dropped $4 billion to acquire Honey Science Corporation, creator of the popular browser shopping plugin and app. Honey helps shoppers find coupon codes, compare prices, view price history and notifies them of sales. PayPal will likely integrate Honey and its 17 million users into much larger Venmo, which has 300 million users. Honey had more than $100 million in revenue last year and managed to turn a profit. The acquisition is quite the payday for investors and employees, as Honey had raised just $30 million to $40 million in funding per various sources.  
Maybe the first and last news aggregation unicorn. SmartNews, which is "a better way to discover the news," has raised closed a $92 million funding round at a $1.2 billion valuation. SmartNews isn't the first company to aggregate news, but its investors appear to like what they see enough to have given it a total of $182 million in funding so far. The company touts its unique advantages as using machine learning instead of humans to curate news, treating partners like "true partners" as opposed to a commodity and by focusing on the U.S. and Japan. SmartNews has reportedly been downloaded 45 million times over the last five years with 11 million downloads in 2019. 
It's still more entertaining to watch a human twirl pizza dough. Picnic, the company behind the automated pizza assembly system, has raised $5 million in seed funding. The company, which focuses on other areas of food production besides pizza, will use the funds for product development, hiring and marketing. Picnic already has a handful of customers using its pizza system which can make 180 18-inch or 300 12-inch pizzas in an hour. Picnic also announced it has hired a new VP of engineering, who formerly worked on the first four Kindle Fire tablets, Nike Fuelband and Microsoft Xbox.
They're going after a $23 billion market. Cheq, which uses AI and natural language processing to protect companies from ad fraud, has raised $16 million in Series B funding. Cheq's approach to ad fraud protection is to go after the fraud in real-time as opposed to identifying the fraud after the ad has run. The company, which even hired former NBA star Dikembe Mutombo as its "Chief Block Officer" for marketing, wants to be the "immune system of the internet,” according to Cheq's CEO Guy Tytunovich. 
They've now raised nearly a quarter of a billion dollars. BlueVine, a fintech company that provides small and midsize business (SMB) loans in as quick as 5 minutes, has raised $102.5 million in Series F funding. The company has now raised between $240 million and $250 million from some of the most notable startup investors. BlueVine, which was founded in 2013, has delivered more than $2 billion in funds to more than 15,000 SMBs. "We are not profitable yet, but we’ve grown 100% since last year and will do triple digit revenue this year," BlueVine's CEO and co-founder Eyal Lifshitz said.
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