Friday 03/02/23

1. In MACRO & OIL NEWS, the Bank of England raises interest rates and Shell makes record profits
2. In TECH NEWS, Qualcomm posts weaker sales, Apple and Google disappoint while Amazon reports higher sales, Meta gets real, ChatGPT hits 100 million users and deepfakes cause concern
3. In AUTOMOTIVE NEWS, Ferrari roars, Ford underwhelms and Harley’s on a roll
4. In INDIVIDUAL COMPANY NEWS, Estée Lauder has a profit warning, Starbucks toasts record quarterly revenue, Peel Hunt expands its retail offering and Sainsbury’s looks vulnerable
5. AND FINALLY, I bring you Prime sorbet…

So the BoE hikes rates and Shell makes a killing…

📢 I’ll shortly be publishing my annual P/Review where I roundup the news of the year in 2022 and then outline predictions for themes in 2023. Because it’s such a big report 😱, I will be publishing it in stages. There is nothing like this anywhere else, and it will help your understanding of what’s going on enormously so keep an eye out for it! In the meantime, I’ve recorded a special podcast where Ralph Hebgen and I talk through some key themes to watch out for this year. You can listen to it HERE or watch it HERE.

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

In Bank of England raises UK interest rates to 4% (The Guardian, Phillip Inman) we see that our central bank raised interest rates for the tenth time on the trot, lifting them from 3.5% to 4%, adding that inflation “is likely to have peaked” and that we’re in for a shorter and shallower recession than had previously been thought. Markets rise on hopes of inflation fall (The Times, Mehreen Khan) shows

the effect of these comments, although there are lingering concerns that wage growth could still push inflation higher. Britain’s workforce to shrink permanently in wake of pandemic, says Bank of England (Daily Telegraph, Szu Ping Chan and Eir Nolsoe) was another observation made by the Bank, referring to the number of Boomers entering retirement and the number of nationals in the workforce “trending down”. The Bank said that this would dent Britain’s longer-term growth prospects but for now, it upgraded its short-term forecasts and remarked that the UK had actually avoided falling into recession going into the end of last year.

Meanwhile, Shell makes record profit as gas prices soar (The Times, Emily Gosden) highlights a stunning performance by Shell’s LNG traders who helped the company smash Q4 expectations and deliver a whopping profit of $40bn – its biggest ever profits! It jacked up its dividend by 15% and announced a $4bn share back programme this quarter. Why is Shell’s UK windfall tax payment so low? (The Guardian, Alex Lawson) is an interesting article which looks at the contrast between its $40bn in profits and miniscule $134m tax bill. * SO WHAT? * The energy profits levy, which was brought in last year, taxes the profits of all oil and gas companies that extract from the North Sea and will be in place until April 2028. Shell paid the EU $520m in taxes last year because they calculate things differently but this will rebalance next year as Shell is expected to pay around $500m to the UK government. So why is the bill so low? Shell says that it’s because the UK market accounts for less than 5% of global revenues – it paid out $13bn in taxes globally last year – and its presence in the North Sea has diminished in recent years. It’s easy to see the headline profits and look at our gas bills and come to the conclusion that oil and gas companies should be paying more, but it’s not quite as simple as that! I’m not particularly supportive of oil and gas companies – just saying that increasing their taxes isn’t really going to do much apart from make them less inclined to invest in the North Sea. If oil and gas from here only accounts for 5% of global revenues, will it actually be worth the hassle for them? I’d say that it’s better to have a small part of something than to have 100% of nothing…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Qualcomm posts weaker sales, Apple, Google and Amazon have mixed fortunes, Meta gets real, ChatGPT grows exponentially and deepfakes make people nervous…

Qualcomm Posts 12% Drop in Sales (WSJ, Meghan Bobrowsky) highlights the latest chipmaker to announce a downbeat immediate outlook as it unveiled a 12% fall in quarterly sales thanks to weaker demand in the global smartphone market. It said that sales in the current quarter could fall even more sharply, but although the weakness in smartphones and PCs is continuing, demand from the automotive sector is still strong. On the plus side, it did say that it expected market conditions to get better in the second half. * SO WHAT? * I continue to maintain that while chip demand is likely to be depressed for a while due to inflationary conditions denting demand for smartphones and PCs, there is long term massive growth potential from the automotive sector as EV sales rise because EVs contain more chips than petrol-powered cars.

Meanwhile, in Big Tech news, Apple blames Covid lockdowns in China for missed profit target (The Times, Callum Jones) highlights the tech giant’s disappointing performance as it undershot market expectations for profits for the first time in almost seven years – in what is normally its most profitable quarter. It said that sales of its iPhone were dented by Covid-lockdown issues in China, but added that this had already subsided. Sales of Macs and wearables were also weaker, but revenues from its services division (which includes streaming) continued to strengthen. * SO WHAT? * It’s good to hear that its services division did well because the company is keen to grow this part of the business and it is perhaps unsurprising that quarterly performance was adversely affected by all those Foxconn problems in China. However, I do wonder whether that was a blip and the fact that its products are firmly positioned at the premium segment of the market (which is less adversely affected by inflation) means that they may be more insulated against any economic downturns relative to some of its rivals.

In Google’s advertising sales fall in sharper than expected slowdown (Financial Times, Richard Waters) we see that the tech giant’s advertising revenues fell by 4% in the last quarter of 2022 – just the second time the company has seen quarterly contraction in its history! The boom in digital services it enjoyed during the pandemic has well and truly receded at an even steeper rate than the market had been expecting. * SO WHAT? * This performance isn’t going to do anything to reassure the market and it will put even more pressure on the company to clamp down on costs – which means that further headcount reductions could be on the cards. There will also be a lot of serious conversations going on as it

considers its next move after Microsoft’s high profile investment in ChatGPT that some believe will threaten Google’s search business.

Amazon marketing blitz pays off with higher net sales (The Times, Isabella Fish) shows that the e-tailer managed to outperform market expectations for the final quarter of 2022 as it seems that a marketing blitz prompted more shoppers into action. Conversely, the company was more downbeat on expectations for the current quarter as it is concerned about consumer spending in the current economic environment. * SO WHAT? * Whilst the performance of the retail side of the business is probably to be expected, it is perhaps a tad concerning that its usually reliable cloud computing division, Amazon Web Services, saw sales growth slow down as its increasingly cash-strapped customers opted to be less profligate in their spending on cloud services.

Following on from the impressive performance I referred to yesterday, Meta: taking spending back to reality (Financial Times, Lex) referred to a more pragmatic Zuck who promised that 2023 would be the “Year of Efficiency”. Although its capex will be in the range of $30bn-33bn over the year, it is less than previous forecasts of $34bn-$37bn and he plans to rein in operating expenses. * SO WHAT? * Although investors will applaud such efforts – and progress on weaning itself off third-party data for ad targeting – I’m sure that they would welcome a reduction of the spending on the metaverse even more! His metaverse/VR/AR division Reality Labs will continue to be a money pit. Having said that, though, as far as I’m concerned, I think he’s got to go for it in the metaverse now because there’s a risk that spending less will result in rivals overtaking all of the efforts he’s made up till now.

Given all the recent hype about AI, I thought it was worth mentioning ChatGPT reaches 100 million users two months after launch (The Guardian, Dan Milmo) as a very impressive milestone, particularly astounding when you consider it was only released two months ago! Analysis by data firm Similarweb showed that it had around 590m visits in January from 100m unique visitors, which analysts from UBS say was unprecedented for a consumer app. That’s even more visits than Watson’s Daily gets 😜! Just by way of comparison, it took TikTok about nine months from launch to reach 100m users and Instagram over two years, according to Sensor Tower! And on the subject of AI, Deepfakes of Idris Elba and Kim Kardashian on ITV raise alarm for actors (Daily Telegraph, James Warrington) just shows how far deepfake has come (remember those freaky Tom Cruise videos??). Actually, I love this one as well – it’s one of Arnold Schwarzenegger and it’s amazing!) as a new ITV show has Idris Elba and Kim Kardashian come to blows. This is seriously hilarious! Equity, the actor’s union, is warning of massive consequences if the law doesn’t keep up with the tech advances.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Ferrari roars ahead, Ford underwhelms and Harley puts in a decent performance…

Ferrari enjoys record year as ultra-rich snap up sportscars (Daily Telegraph, Howard Mustoe) highlights another stellar performance by the luxury sportscar maker as its profits hit a record high of €221m last year with a chunky 17% hike in sales! CEO Benedetto Vigna expects “an even stronger 2023”. Demand last year was particularly strong from the US and China. * SO WHAT? * This just provides further evidence as to how little the wealthy are feeling the effects of the current economic climate! Will governments ever introduce a higher tax on luxury goods I wonder?? I doubt it, but it may be something to consider!

In Ford Posts $1.3 Billion Fourth-Quarter Profit, Misses Full-Year Profit Guidance (WSJ, Nora Eckert) we see that the venerable

automotive company posted disappointing quarterly results yesterday as it missed its full-year profit guidance thanks to supply chain problems, quality issues and structural inefficiencies. The company had been on track to hit the lower end of its yearly guidance going into the end of the year but parts shortages and delivery issues proved to be a drag. The company is planning on making more cost savings this year. Tough times.

Then in Harley’s on a roll with roaring end to the year (The Times, Callum Jones) we see that the bike manufacturer beat market expectations in its quarterly results yesterday thanks to higher shipments and robust pricing helping to offset rising costs. Sales over the quarter were flat on the year while issues with component shortages and rising shipping costs were mitigated by strong global demand. Nice.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Estée Lauder disappoints, Starbucks has a good quarter, Peel Hunt joins forces with rivals and Sainsbury’s looks vulnerable…

In a quick scoot around some of today’s other interesting stories, Estée Lauder deepens profit warning (The Times, Isabella Fish) highlights a weaker-than-expected performance by the cosmetics group that has been particularly badly hit by challenges in the China market. On the plus side, frangrances were strong and the company expects a recovery in the second half of the year. * SO WHAT? * You would have thought that the company has a decent chance of recovery as more people return to work and want to put their “war paint” on. You could also argue that cosmetics are an affordable luxury that people can buy to cheer themselves up in difficult economic conditions. I’m going to give Estée Lauder the benefit of the doubt here, but things aren’t great at the moment!

In Starbucks Reports Record Quarterly Revenue While Costs Rise (WSJ, Heather Haddon) we see that the company managed to post record revenues over the last quarter although higher costs did take the edge of profits. Both global and US same store sales were up but China was a lot weaker than expected. * SO WHAT? * I think that this was a particularly impressive performance given that China – one of its key markets – was sooooo weak. Hopefully the lifting of strict lockdown restrictions will help turn this business around pretty quickly.

I thought Peel Hunt joins forces with rivals to expand retail offering (The Times, James Hurley) was particularly interesting as it has agreed to work with City rivals at Hargreaves Lansdown,

Jefferies, Numis and Rothschild & Co in a venture called RetailBook, which will allow retail investors better access to IPOs and share offerings. This will entail the relaunch of Peel Hunt’s existing REX service, which does precisely this. RetailBook will have its own offices and staff and operate independently of Peel Hunt while the other partners will have the option to take equity in the new company. * SO WHAT? * This is pretty amazing as it’s not often you see rivals like this getting together! Apparently, there has been growing demand for Peel Hunt’s REX service and I guess that it needed scale to take things to the next level. IPOs and share offerings are currently dominated by big institutions, so this is a great option for individuals to get involved in these things should they want to. I would argue that there’s not a constant need for retail investors to get involved in such money raisings because there is often a huge amount of hype that they could get swept up in – but at least with RetailBook they’ll have the option to get involved, whereas previously, they’ve had no choice…

Then in Suddenly Aldi and Lidl are no longer Sainsbury’s biggest problems (Daily Telegraph, Ben Marlow) we see that there are rumours now flying about that Sainsbury’s could be under attack as wholesaler Bestway, which owns the Costcutter convenience chain and Bargain Booze off licences, has built up a 4.5% stake in Sainsbury’s. Bestway’s intentions are currently unclear. * SO WHAT? * This will no doubt have prompted the attention of potential rival bidders but TBH I think that consolidation among supermarkets has proved to be incredibly problematic over the years for competition reasons. That just leaves private equity firms. Or Bestway. This drama will go on!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

I’ve not had this drink and I don’t really understand the hype surrounding it but it seems that people are going mad for it in a solidified form in Dessert shop creates Prime sorbet version of sell-out drink and fans go wild (The Mirror, Ariane Sohrabi-Shiraz). There’s only one scoop per customer allowed, though! I lost any belief I had in energy drinks years ago when I was on a triathlon training camp where one of the guys in our group was very senior in a very well-known company that is famous for making energy drinks. It was a really hot day and when we got to the top of one of the mountains we were climbing we were all standing around rehydrating from our water bottles and this geezer dropped his bottle. What came out? No – not the drink he was famous for – it was Coca-Cola 🤣🤣🤣! I believe that it’s a classic trad cyclist concoction if you want energy but can’t get the powder – you fill half your water bottle with coke, half with water and then add a pinch of salt to help hydration on hot days. I just thought this guy was full of 💩 from that point and couldn’t believe anything he said or did! He was so embarrassed about what came out of his bottle though as it was the way it fizzed that gave the game away! Maybe he just wanted a change 🤣