Thursday 09/05/24

1. In MACRO, MARKETS & CRYPTO NEWS, Sunak has one final job, the IPO pipeline is building up and FTX is ready to compensate
2. In TECH & MEDIA NEWS, Intel cuts its outlook, Arm underwhelms, Informa does a deal with Microsoft, Shopify drops and Uber hits a speed bump while Disney and Sky offer more streaming options
3. In CAR NEWS, VW sticks up for China, Tesla is “under investigation for fraud”, Toyota continues to play catch-up and Cazoo faces administration
4. In MISCELLANEOUS NEWS, the housing market stutters, the jobs market reaches a turning point, Direct Line is under the weather, Airbnb gets wary and AstraZeneca signals the end of an era
5. AND FINALLY, I thought I’d show you what A&E would look like if it was based on homeopathy…

So Sunak slips into his role as fall guy, London’s IPO pipeline is improving and FTX looks like it’ll be able to compensate after all…

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:

The Tory right has one last job for Rishi Sunak (Financial Times, Robert Shrimsley) is an interesting article which sums up the situation that Sunak is facing after his party took a massive pasting at last week’s local elections. Basically, the rebels in his party have now given up removing him as leader because they did so badly that getting a new one in would be like rearranging the deckchairs on the Titanic. All that remains now is for Sunak to be the fall guy for everything that is going wrong and those on the right of the Conservative party are likely to revel in blaming him for everything. * SO WHAT? * FWIW, I think that Sunak was on a hiding to nothing after the whole Truss-Kwarteng debacle. At least he, along with Hunt, managed to steady the ship at the time – but then disaster just piled on top of disaster. At the end of the day, I think that the government will look back and see that it ultimately failed because a) it was the author of its own downfall (Brexit, partygate, Truss-Kwarteng, HS2, immigration/Rwanda, the list goes on) and b) it had to deal with things that were out of its control (Covid, Russia/Ukraine, war in the Middle East, commodity prices etc.). If Keir Starmer loses the general election now, Labour will question its reason for existence. I don’t mention the LibDems, BTW, because I don’t think they are a serious force in this election PARTICULARLY because the leader, Sir Ed Davey, has been doomed by having been the postal affairs minister at the time of the Post Office scandal. You just wonder whether it really is worth Sunak soldiering on until the end of the year or whether he should just cut his losses, limit the amount of time his critics can whinge about him and call an early election.

In happier news, London Stock Exchange says IPO pipeline is ‘building up’ (The Times, Emma Taggart) cites the LSE as saying that its pipeline of upcoming IPOs is “building up” ahead of the FCA’s imminent major overhaul to existing UK listing rules (it’s the most extensive re-write of the primary market rules in 40 years!). Companies are apparently waiting for the new rules to come into force before listing. * SO WHAT? * The rules are getting this revamp to make London a more attractive place for IPOs and are expected to be issued in the next few weeks. The Treasury and the City alike have been getting increasingly alarmed by the dearth of listings, so they are now trying to do something about it. Interestingly, the CEO of the LSE said that “There is more in the pipeline than there has been for some time”. Investment banks will be praying that the companies go through will those IPOs! I do think it’s possible that some companies might hold back until after the UK general election although perhaps it looks so much like Labour is going to win that they might just go ahead anyway.

I thought that Bankrupt crypto exchange FTX says it will be able to repay creditors full $11bn (The Guardian, Alex Hern) was also worth mentioning because it turns out that, once the exchange has sold off all remaining assets, it could raise over $16bn – way more than the $11bn it owes the creditors! John Ray III, known for overseeing the dismantling of Enron, took over as CEO after Sam Bankman-Fried abruptly left. * SO WHAT? * This is a great outcome, but although Ray will no doubt take as much credit as possible, he was undoubtedly helped by the fact that bitcoin was worth about $20,000 when FTX collapsed – and since then it’s value has more than tripled! Although the creditors may get back the money they lost, they may actually feel somewhat short-changed given that they were effectively forced to sell their crypto holdings at the prevailing price at the time of the collapse, missing out on the major gains since then. SBF will no doubt try to use this somehow to get a shorter sentence (although he didn’t have anything to do with it!).

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!

Intel reins things in, Arm underwhelms, Informa does an AI deal with Microsoft, Shopify falters, Uber hits a speed bump, Disney and Warner offer a bundle and Sky wants streaming to boost subscriptions…

Intel Lowers Sales Outlook After China Chip Licenses Revoked (Wall Street Journal, Asa Fitch) follows on from what I said in yesterday’s Watson’s Daily about the US government revoking export licences allowing Intel and Qualcomm supply Huawei with semiconductors in that the company decided to cut its revenue forecasts for the current quarter. However, it would still fall within the previously stated range and the company left its full year guidance unchanged. * SO WHAT? * While the US side is restricting the selling of certain chips, Beijing has already recently told telecoms carriers to stop using foreign chips by 2027. The tit-for-tat sanctions tirade continues…

Staying with chips, Arm revenue forecast fails to dazzle (The Times, Robert Miller) shows that investors were underwhelmed yesterday by the company’s full-year revenue forecasts coming in below expectations. * SO WHAT? * I think that, after a storming Q4 last year when Arm struck four major licencing agreements, things were bound to get a reality check. Is the company under-promising so that it can over-deliver? Given that it is so powerful in the mobile phone segment, I would have thought that it would be supremely well-placed to benefit from the potential surge in interest in a new generation of “AI-inside” mobile phones!

Elsewhere, Informa strikes AI deal with Microsoft (Financial Times, Daniel Thomas) shows that the UK publishing and exhibitions company has just struck a deal with Microsoft worth over $10m in its first year to allow access to its data to train Microsoft’s AI models. The agreement will run from 2024 to 2027. * SO WHAT? * This is the latest deal to be struck between an AI developer and a media group – and these deals are proving to be nice little earners if media groups can get them. It almost seems to me like being able to get such a deal is becoming a badge of quality – that the AI giants are willing to throw companies a bone if they think that the content is good enough! Being cynical, I would have thought that the TRULY big deals won’t announce any financials whereas the smaller ones will. Meanwhile, Informa has managed to bounce back from its Covid nightmare and said that its business is doing well across all major regions. It’s boosted its 2024 share buyback programme by around 50% and has nudged up revenue and profit forecasts for the full year. What a recovery!

Then in Shopify Stock Slumps to Record Drop as Revenue Outlook Weakens (Wall Street Journal, Adriano Marchese) we see that Shopify decided to cut its sales and margin forecasts for the current quarter as it expects weakness in Europe, negative impact from a stronger dollar and higher marketing costs. Investors didn’t take this well and sent the share price down sharply by its biggest ever one-day drop (19%!). Presumably, they were particularly surprised given that Q1 performance had been better-than-expected but it seems that giants such as Temu and Shein are hoovering up online shopping dollars.

In Uber’s results hit by legal costs after decade of regulatory battles (Financial Times, Camilla Hodgson) we see that Uber underwhelmed versus expectations in Q1 thanks to legal costs incurred over its decade-long battle with regulators – including a $178m charge to settle a class-action lawsuit brought by taxi drivers in Australia. Uber and other ride-hailers are continuing to battle with regulators regarding the status of drivers (are they employees or are they contractors), among other things. * SO WHAT? * This is a bit of a downer considering that it was only a few months ago that it trumpeted its first ever annual profit! The company is looking to get further growth from broadening the services it provides, like grocery delivery in the short term and self-driving vehicles in the longer term.

Then in media news, Disney and Warner to Offer Bundle of Their Streaming Services (Wall Street Journal, Joe Flint) shows that the two companies are going to be joining forces to offer a bundle of their streaming services in a bid to simplify choices in an ever-more fragmented streaming market. The new package will offer Disney+, Hulu and Warner’s Max service in both ad-free and ad-supported formats. Meanwhile, Sky turns to streaming to shore up sports subscriptions (Daily Telegraph, James Warrington) shows that the media company is on the verge of launching a new sports streaming service to boost subscription demand. It will show up to 100 events across a variety of sports on the Sky Sports+ service. Customers will be able to access it via live streams and a mobile app in addition to a new dedicated channel. * SO WHAT? * First of all, I think that the Disney and Warner thing is quite ironic as it seems we are now going full circle from the big satellite and cable bundles of yore, through to individual studios going their own way following “the Netflix era” and now back to bundling again! I really think that, in order to make money from a broader base, bundling HAS to be a part of the strategy – as has advertising, on an increasing basis. The Sky thing sounds intriguing but I guess the success will all depend on the pricing.

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!

VW wants Brussels to go easy on China, Tesla faces another investigation, Toyota continues to lag and Cazoo faces administration…

Volkswagen warns Brussels against raising tariffs on Chinese electric cars (Financial Times, Mari Novik, Kana Inagaki, Arjun Neil Alim and Peter Campbell) shows that VW is saying that Brussels should not increase tariffs on Chinese EVs because it would risk “retaliation” against other international brands. VW brand chief Thomas Schafer went as far as saying “I don’t believe in tariffs. I want everybody to compete on the same terms”. His “concerns” echo those of Mercedes-Benz boss Ola Källenius who, back in March, called for Brussels to cut tariffs on Chinese EVs. WHAT AN ABSOLUTE CROCK OF 💩 IMHO 🤣. It is worth noting here that VW used to have an almost 20% market share of car sales in China – a number that has plummeted to under 5% currently! You can see why they want to suck up to China now. * SO WHAT? * This is actually so transparent as to be amusing. You could even make a headline out of this: “German carmakers desperately hoping to boost their business in China reject tariffs on Chinese EVs shocker!”. Crudely put, those still trying to hang on to business in China are saying that there shouldn’t be tariffs and those who don’t have a China business (or who are giving up/have given up) are all for tariffs on Chinese EV imports to Europe. As things stand currently, Chinese EVs are subject to a 10% tariff when imported to Europe while European carmakers currently pay 15% when exporting to China.

Tesla’s problems continue in Tesla ‘under investigation for fraud’ over self-driving claims (Wall Street Journal, James Titcomb) as the Department of Justice is now investigating whether Tesla has committed wire and securities fraud by overstating the capabilities of its self-driving systems. We then see Will Tesla’s EV Charging Slowdown Supercharge Competitors? (Wall Street Journal, Jinjoo Lee) ponder whether Tesla’s recent drastic actions on its Supercharger business will spur competitors into action to fill the Tesla-shaped void! EV charging stocks including ChargePoint and Blink Charging have seen some pretty chunky share price rises since the move. * SO WHAT? * The answer to the question – at the moment anyway – appears to be that although charging companies could potentially speed up installations by employing ex-Tesla employees the fact remains that profitability is going to be hard to come by in the short-term as the business itself is incredibly cash-hungry. There is even debate as to whether

this business will ever be profitable on a longer term basis. I’ve often said that I think that charging and related networks will get less and less important over time as rapidly improving battery and battery storage tech will consign any range anxiety to the past. They may well make money for the next few years as EV adoption increases but then I would expect a sharp drop-off.

In other car-related news, Toyota’s hybrid surge still leaves it playing catch-up on battery EVs (Financial Times, Lex) highlights Toyota’s laggard status in the world of EVs and the massive success that has resulted as many consumers have ditched the idea of full-electric and gone hybrid instead. However, behind this recent success lies the fact that Toyota still has a way to go to catch up with rivals in the EV space. It still needs to catch up because EV take-up in China is strong – and this is a key market for Toyota. * SO WHAT? * Toyota’s share price has almost doubled in the last year, powered by the success of hybrids and the company’s valuation is now comfortably above that of VW. However, in order to maintain (or better) this, the company still needs to catch up in EVs and overcome recent scandals involving problems at subsidiary Daihatsu and the manipulation of safety test results.

Then in an example of karma coming back to bite you, Used car dealer Cazoo poised to enter administration (Daily Telegraph, Matthew Field) shows that online car supermarket Cazoo is on the cusp of insolvency after it failed to attract emergency funding. The online car supermarket was founded by former Zoopla chief Alex Chesterman has now filed a notice to appoint administrators at the High Court. What a massive fall from grace from when it was valued at $8bn on its New York flotation in 2021. * SO WHAT? * The value destruction here is an absolute disgrace and it follows other SPAC-backed flotation heroes-to-zeroes Arrival and Babylon. I know it sounds a bit extreme but I think that the humungous great failure by an arrogant management (remember how Chesterman slagged off UK investors as being incapable of “understanding” the true value of his company when he waltzed off to New York??) should be severely punished because it leaves plenty of innocents (workers mainly but also shareholders) in its wake. However, it probably won’t be. This just goes to show how incredibly risky SPACS have been (but that didn’t stop plenty of early investors and investment banks getting fat from them!). If you can’t jump through regulatory hoops for a “regular” listing then maybe you just aren’t ready yet…

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!

The housing market falters, the jobs market reaches a turning point, Direct Line takes a hit, Airbnb gets cautious and AstraZeneca closes an important chapter…

In a quick scoot around some of today’s other interesting stories, Housing market stutters in traditional hotspots (The Times, Tom Howard) cites the results of the latest RICS survey which show that the housing market’s recovery is “stuttering slightly” although estate agents remain optimistic overall about the market. Meanwhile, Labour market ‘close to turning point’ (The Times, Jack Barnett) cites the latest research from KPMG and REC which shows that the number of workers available to take up new jobs increased sharply over the last month as businesses reined in their hiring activity. This suggests that the labour market is cooling off which implies that there will be less upward pressure on inflation – and if that is the case, then it makes it more likely that the Bank of England will cut interest rates, which in turn should help to stimulate the economy 😅.

In individual company news, Bad weather and a drop in motor customers hit Direct Line (The Times, Ben Martin) shows that worse-than-expected weather (increasing claims at its home insurance division) and the decline of motor customers hit the troubled insurer but the CEO had a top management shake-up last week and says that trading at the start of 2024 has shown some positive signs.

In Airbnb wary of slowdown after early Easter sparks jump in profits (Financial Times, Camilla Hodgson) we see that Airbnb’s profits more than doubled in Q1 but the company is more downbeat about the prospects for Q2. It does, however, expect growth to pick up again in the middle of the year with a strong summer in prospect.

AstraZeneca withdraws Covid vaccine after drop in demand (The Times, Alex Ralph) marks the end of an era for the pharma giant as it announced that it would be withdrawing its Covid-19 vaccine worldwide due to a “surplus of available updated vaccines”. Wow! The end of an era!

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…

Today I thought I’d show you what A&E might look like if it was based on homeopathic principles in this classic Mitchell & Webb sketch! Will you be ordering the tasty beverages they have at the end the next time you go to the pub??