Wednesday Jan.19, 2022

🎮 Microsoft’s $70B meta-gaming gambit

Reviewing the subscription bills like [YinYang/E+ via Getty Images]
Reviewing the subscription bills like [YinYang/E+ via Getty Images]

Hey Snackers,

Cobb salad, NFT on the side: The world’s first NFT restaurant only accepts nonfungible tokens to enter its exclusive dining room. Its $7.9K tokens sold out in hours — and are reselling for $300K. Leave the server a nonfungible tip.

Stocks fell across the board and the Nasdaq closed in correction territory, down 10% from its November record. The crypto market briefly slipped below $2T, a drop of nearly 50% from its high of nearly $3T in November. US mortgage interest rates climbed for the fourth straight week.

Meringues

Microsoft’s $70B Activision bid is the biggest cash deal ever, cementing gaming in the metaverse

Candy, crushed… Yesterday Microsoft announced plans to buy Activision Blizzard, which makes hits like World of Warcraft and Candy Crush, for about $70B — the largest all-cash acquisition in corporate history. For reference: Previously Microsoft’s biggest deal was its $26B LinkedIn purchase. Shares of Activision spiked 26% yesterday, after slipping 27% since California regulators sued the company over employee harassment in July.

  • Microsoft’s gaming biz is now the third largest in the world after Tencent’s and Sony’s. Microsoft’s existing gaming biz (think: Xbox, Minecraft) brought in $15B last year, and its Xbox Game Pass monthly subscription now has 25M subscribers.
  • Antitrust scrutiny is expected, but Microsoft is reportedly so confident the deal will close, it’s agreed to pay a $3B cancellation fee if it falls through.

When it games, it pours… Sales across the gaming industry boomed 27% during lockdown in 2020 and continued growing last year. Gaming revenues are forecast to jump from $180B in 2021 to $220B by 2024. And as gaming companies reach new sales levels, there’s been a flurry of consolidation: There were $117B worth of gaming acquisitions last year, and Grand Theft Auto maker Take-Two agreed to buy FarmVille creator Zynga last week for $12.7B.

Games could be key to monetizing the metaverse(s)... As Microsoft races rivals like Meta (fka: Facebook) and Nvidia to build the first widely used metaverse, blockbuster games could help attract skeptics. Platforms like Fortnite and Roblox have already built massive followings and in-game virtual economies. CEO Satya Nadella said Activision “will play a key role” in building metaverse platforms for 3B global gamers.

Inferno

Netflix raises US and Canadian prices again but slashes prices in India to reach its next “100 million”

Don't look up... at your streaming bill. Netflix is raising prices for its 74M subscribers in the US and Canada across plans. The standard plan (aka: the most popular) is rising by $1.50/month to $15.50. The hike comes less than a year and a half after the Flix's last US increase.

  • Watch again: Netflix gained 36M subscribers in 2020 as we hibernated with laptops, ramen, and "Tiger King."
  • Next episode: That led to subscription saturation (#subscripturation) and slowing growth. Last quarter Netflix added fewer than 4.5M subs.

The real "Single's Inferno"... no one to share a Netflix password with. US-Canada subscribers make up more than a third of Netflix’s 214M subs. But in the second quarter Netflix lost US-Canada subscribers. The price hikes could add $1B+ in annual revenue to compensate for sluggish growth in the Flix’d-out market. As streaming competition #intensifies, Netflix is exploring other growth opportunities:

  • New products: Last year it launched a merch shop (think: "Emily in Paris" sunglasses). It also released games on its mobile app, including two based on "Stranger Things."
  • New markets: Netflix is doubling down on foreign content like “Squid Game” for international growth. Last month it slashed prices in India to $2.60 to compete with Disney and Amazon in the largest untapped digital market.

Saturated customers pay for unsaturated growth… Netflix has become a cultural staple in the US. It’s betting you’ll shell out the extra $1.50/month to not feel left out while your coworkers talk “Cobra Kai.” While saturated markets give Netflix price power, unsaturated markets like India can give it growth power. Of India’s 1.4B people, only 5M are Netflix subscribers. Netflix is looking to India for its “next 100 million” — and it can afford to slash prices abroad by hiking prices at home.

What else we’re Snackin’

  • Swallow: Pfizer said its newly authorized Covid pill is effective at treating Omicron in lab tests — but supplies are scarce.
  • Miss: Goldman Sachs shares fell 7% after it said quarterly profit dropped from last year on disappointing trading revenue. It’s also been splurging on comp to retain stressed-out talent.
  • Slick: Exxon pledged to hit net-zero emissions on its operations by 2050. It's the last US oil giant to make a net-zero promise amid pressure from activist investors.
  • Yikes: AT&T and Verizon are delaying the rollout of 5G wireless services near some US airports after airlines warned the technology could cause "catastrophic disruption" for flights.
  • Subtle: An activist investor once again told Kohl's to shape up or sell the company, writing that its exec team is "incapable" of creating shareholder value — a month after a separate investor applied pressure.

Wednesday

  • Earnings expected from: UnitedHealth, Bank of America, Procter & Gamble, Morgan Stanley, and US Bancorp

Authors of this Snacks own shares of: Microsoft, Netflix, Amazon, Disney, Zynga, AT&T, and Pfizer

ID: 1995744

Get Your News

Subscribe and thrive

Snacks provides fresh takes on the financial news you need to start your day. Chartr provides data visualizations on business, entertainment, and society. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Latest Stories

Markets
Net net
7h
Earnings can’t stop, won’t stop
Markets
Matt Phillips
4h

Chipotle continues to go on a tear, hitting a sales record

Hey it might not be the kind of AI stock investors are all hot and bothered over, but don’t sleep on the burrito business.

Chipotle posted much better-than-expected results on Wednesday, with sales rising 14% to a record $2.70B in the first quarter, which is like a billion additions of guac.

Profits jumped 23% to $359M.

Chipotle has quietly cruised higher over the last year. It’s up 63%, compared to the 24.5% gain for the S&P 500 over the 12 months through Wednesday’s close. Not bad for a rice-and-beans based business model.

Tech
Rani Molla
5h

Facebook had great earnings, the market hates it

Facebook reported impressive earnings. Record first-quarter revenue thanks to AI! Profit up 117% compared to a year earlier! But at the same time, its capital expenditures are going up and it’s expecting second quarter revenue potentially lower than analyst estimates. So in other words, the future doesn’t look as bright as the present.

All in all the stock is down more than 10%. (Basically the opposite of what happened with Tesla yesterday).

Business
Rani Molla
9h

Why Tesla investors are holding on to hope for a cheap car

Despite terrible earnings numbers last night — declining vehicle sales, disappointing revenue and profit, enormous spending — Tesla stock is up more than 10% as of midday. That’s a welcome move for the car company, that’s been among the worst performers this year in the S&P 500.

Why the about face?

While Reuters reported earlier this month that Tesla is no longer making its long-awaited $25,000 mass-market car — news sent the stock, already suffering from headwinds across the EV industry, down even further— Tesla reported during its earnings that it’s going to make cheaper cars than it currently has.

Before the second half of next year, Tesla said it will release “more affordable models” that “will utilize aspects of the next generation platform as well as aspects of our current platforms, and will be able to be produced on the same manufacturing lines as our current vehicle line-up.”

So rather than release the $25,000 Model 2, Tesla is incorporating some of that technology into its existing models. UBS called it the Franken-3Y2.

Read more
Spotify Q1

Spotify’s finally turning its user growth into serious cash flow

Tom Jones, David Crowther9h
Sponsored by
Go Deeper with Market Depth

Nasdaq TotalView powers the need-to-know data serious investors rely on.

Read more
Scuba Diving in the Wild Blue Yonder in French Polynesia
Job switchers and stayers

The FTC is banning non-compete clauses

Why that might make job switching even more lucrative

Millie Giles, David Crowther10h
Matt Phillips
10h
Hasbro pretty much entirely depends on Magic: The Gathering to make a profit

William Coulman, David Crowther
10h
Thousands of bank branches have closed across America

America has lost thousands of bank branches. The latest closure? JPMorgan’s iconic 45 Wall St. address.

Bank scene
11h

TikTok versus the United States

Casey Newton
Senate Takes Up Foreign Aid Package Passed By House

Your inbox is ready

Subscribe and thrive

Snacks provides fresh takes on the financial news you need to start your day. Chartr provides data visualizations on business, entertainment, and society. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Culture
William Coulman & David Crowther
12h

Not so Gucci

French luxury fashion conglomerate Kering has seen its shares fall ~10% in the last 24 hours after reporting that sales at its flagship brand Gucci had dropped 21% in its latest quarter.

Kering’s other brands, which include Yves Saint Laurent, Bottega Veneta, and Balenciaga, fared slightly better — but the only real bright spot was the company’s eyewear division, where sales rose 24% (9% on a comparable basis).

With Gucci responsible for roughly two-thirds of the company’s profit, the ongoing struggles of the brand are weighing heavily on the bottom line: the company expects recurring operating profit to drop 40-45% in the first six months of the year.

Gucci execs will be hoping that new designer Sabato de Sarno can turn the iconic brand’s fortunes around, particularly in China where demand has dropped precipitously. His designs only started hitting stores in February.

Gucci sales

Kering Warns Profit to Tumble Following Gucci Woes in China

Kering Warns Profit to Tumble Following Gucci Woes in China

With Gucci responsible for roughly two-thirds of the company’s profit, the ongoing struggles of the brand are weighing heavily on the bottom line: the company expects recurring operating profit to drop 40-45% in the first six months of the year.

Gucci execs will be hoping that new designer Sabato de Sarno can turn the iconic brand’s fortunes around, particularly in China where demand has dropped precipitously. His designs only started hitting stores in February.

Gucci sales
World
Good morning
16h
What’s happening
17h

Starbucks is challenging a labor watchdog’s power in a far-reaching Supreme Court case

Max Knoblauch
Read
17h

What a US TikTok ban could mean for the rest of the market

Rebecca Moretti
Read
17h

Goldman ditches its robo-advisory biz as it breaks up with consumer banking

Jamie Wilde
Read
Markets
Worse than expected
4/23/24
Ugly numbers, but Tesla shares bounce
Elon Musk
Rebecca Moretti, Rani Molla
4/23/24
Just the start

Banning
TikTok

What it means for the rest of the market

Business
Jack Raines
4/23/24

The FTC vs. Big Handbag

The Federal Trade Commission has sued to block big tech, big grocery, big vacuum, and now, big… “affordable luxury handbag.”

Yesterday, the FTC sued to block Tapestry Inc’s $8.5B acquisition of Capri holdings. The agency is worried that a merger between Tapestry, which owns the Coach and Kate Spade brands, and Capri, which owns Michael Kors, would eliminate competition in the market.

The crux of the FTC's argument lies in the scope of the "accessible luxury" handbag market, where Tapestry competes with Michael Kors, with the FTC saying the following:

Where Tapestry and Capri most vigorously compete against one another – mainly between Tapestry’s Coach and Kate Spade brands against Capri’s Michael Kors brand – is in the “accessible luxury” handbag market. Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices.

The deal would eliminate fierce head-to-head competition on many important attributes including on price, discounting, and design. Tens of millions of Americans that purchase Coach, Kade Spade, and Michael Kors products could face higher prices

While Capri and Tapestry are two of the largest players in this market, winning an antitrust case won't be so straightforward, as consumers have other options at similar price points, including Marc Jacobs (owned by competitor LVMH), Tory Burch, Cuyana, and Mansur.

FTC Moves to Block Tapestry’s Acquisition of Capri

FTC Moves to Block Tapestry’s Acquisition of Capri

The crux of the FTC's argument lies in the scope of the "accessible luxury" handbag market, where Tapestry competes with Michael Kors, with the FTC saying the following:

Where Tapestry and Capri most vigorously compete against one another – mainly between Tapestry’s Coach and Kate Spade brands against Capri’s Michael Kors brand – is in the “accessible luxury” handbag market. Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices.

The deal would eliminate fierce head-to-head competition on many important attributes including on price, discounting, and design. Tens of millions of Americans that purchase Coach, Kade Spade, and Michael Kors products could face higher prices

While Capri and Tapestry are two of the largest players in this market, winning an antitrust case won't be so straightforward, as consumers have other options at similar price points, including Marc Jacobs (owned by competitor LVMH), Tory Burch, Cuyana, and Mansur.

Matt Phillips
4/23/24

Tesla had a good ride, but the stock’s price destruction is historic

Few people have created as much value as Elon Musk. The iconoclastic entrepreneur took Tesla from a market capitalization of roughly $2 billion at the time of its IPO in 2010 to $1.2 trillion in early 2023. That’s a return of about 55,000%. Musk made a lot of people a lot of money.

On the other hand, Tesla shares are down nearly 60% since their all-time peak. The company has ceded ground in EVs, prompting a series of profit crushing price cuts to preserve market share. The cumulative loss in market value over that period is pushing $800 billion. Few corporate executives have presided over such a degree of value destruction.

And it could get worse, as people are bracing for an ugly update when Tesla reports after the close Tuesday.

Jack Raines
Opinion
4/23/24
Starbucks could use a CIO

Customers give Starbucks billions of dollars in prepaid credits each year. Should the coffee chain be investing it?

Starbucks American Coffee Chain Cafe In Amsterdam
Tech
Rani Molla
4/23/24

Smaller AI models are in

Tech companies that have long touted the enormity of their AI models are now saying size doesn’t always matter.

Microsoft is the latest tech company to introduce smaller AI models, as part of its Phi-3 tech family. Last week Meta released two smaller models of its AI Llama 3 and earlier this year Alphabet did the same. All are open sourcing these models to encourage wider adoption.

Microsoft says its smallest model, which can fit on a smartphone and wouldn’t need to be connected to the internet to work, is nearly as good as OpenAI’s GPT-3.5. A Microsoft exec suggested this less expensive model could be a good fit for online advertisers, if not doctors.

Microsoft Makes a New Push Into Smaller A.I. Systems

Microsoft Makes a New Push Into Smaller A.I. Systems

Microsoft says its smallest model, which can fit on a smartphone and wouldn’t need to be connected to the internet to work, is nearly as good as OpenAI’s GPT-3.5. A Microsoft exec suggested this less expensive model could be a good fit for online advertisers, if not doctors.