Thursday 27/04/23

1. In TECH NEWS, the Microsoft/Activision Blizzard deal gets booted by the CMA, Meta ends its slump and Tencent continues to search overseas
2. In FINANCIALS NEWS, First Republic can’t shake off contagion worries and Standard Chartered rides high
3. In CONSUMER & REAL ESTATE NEWS, Bank of Mum and Dad continues to save the day, UK gambling faces an overhaul and Persimmon builds fewer homes
4. In INDIVIDUAL COMPANY NEWS, Kering lags, Heathrow disappoints, GSK does well and PwC embraces AI
5. AND FINALLY, I bring you an unusual “job”…

So Microsoft/Activision is off, Meta rebounds and Tencent is on the hunt…

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 Activision Blizzard blasts UK after regulator blocks $75bn Microsoft deal (Financial Times, Kate Beioley, Tim Bradshaw and Richard Waters) we see that the UK competition regulator, the Competition and Markets Authority, announced yesterday that it will block the much-hyped deal, prompting hissy fits from Activision Blizzard who said that the UK was “clearly closed for business” while Microsoft said that the move “discourages technology innovation and investment in the United Kingdom”. This is kind of hilarious because the FTC filed to block the deal last December (so does that mean America is closed for business as well 🤣??), although European Commission officials seem more positively disposed to it. Funnily enough, Activision’s share price fell by 11% in trading yesterday on the news, while Microsoft’s went up by almost 8%. What’s next for Microsoft, Activision after UK rejects deal (Wall Street Journal, Sarah E. Needleman) suggests potential alternative courses of action. It suggests that Activision Blizzard could become a consolidator rather than being a consolidatee (a deal break-up fee of $3bn from Microsoft will no doubt come in handy!) but sounds less positive on the prospects for Microsoft as other comparable targets that it might go for (e.g. Electronic Arts, Take-Two Interactive Software and Ubisoft Entertainment) could well face the same obstacles. Microsoft/Activision: tough talk aside, both buyer and seller can thrive solo (Financial Times, Lex) suggests that, whilst annoying, the Microsoft juggernaut will still trundle on with this latest setback having little effect on its profits (it had reported strong Q1 results late on Tuesday, mainly thanks to the strength of its cloud business, Azure) and that Activision may even be better off without Microsoft – particularly as it will pocket a fat $3bn break-up fee as I said above! * SO WHAT? * The initial reaction on the news would suggest that investors reckon that Microsoft, at least, is better off without this deal – but both parties

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will be lodging an appeal, so it ain’t over yet! Having said that, legal experts are currently saying that the deal is now effectively dead.

Elsewhere, Facebook Parent Meta Platforms Sees First Sales Increase in Nearly a Year (Wall Street Journal, Salvador Rodriguez) highlights a rare bit of good news for Meta Platforms as the performance of its ad business as its revenues were ahead of market expectations, with a positive outlook to boot. It looks like its heavy investment in AI tools to power its ad business after the damage caused by Apple’s privacy rule changes – along with heavy cost cutting efforts – are clearly filtering through. Zuck has high hopes for a positive impact of AI tools on all of Meta’s apps and services and inferred that Meta would take a more open-source approach to AI than rivals such as Alphabet, Microsoft and Amazon, given that it is not itself a cloud computing service. He did, though, reiterate his commitment to the metaverse. * SO WHAT? * This is good news for Meta, which has had a tough time of things for quite a while now. I’m interested in the role AI has to play in marketing ad campaigns and what that means for creators. It’ll be interesting to see how Zuck takes things on from here after what has effectively been a serious overhaul of the business.

Then in Tencent accelerates investment in overseas gaming studios (Financial Times, Eleanor Olcott and Qianer Liu) we see that Tencent is intensifying its pursuit of assets outside China as it tries to diversify away from its domestic market. Tencent has been under huge pressure from a Chinese regime that just doesn’t like it – and although some of the tighter restrictions have been lifted most recently, China’s biggest company in market cap terms is trying to use its might to buy up European gaming studios in particular. * SO WHAT? * The domestic gaming business made up 73% of Tencent’s overall gaming revenue in 2022 but the company fears that the Chinese regime will clip its wings in terms of further expansion. However, there is even a chance that TOO MUCH overseas expansion might provoke government ire because there is a definite push for Chinese companies to grow their domestic business, particularly in the face of ongoing US-China tensions. This is a tricky tightrope to walk, for sure!

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!

First Republic fails to outrun contagion fears and Standard Chartered goes higher…

First Republic shares continue to slide with no deal in sight (Financial Times, Brooke Masters, Stephen Gandel, James Fontanella-Khan, Colby Smith and Will Louch) shows that First Republic is still having problems as its share price tanked again in trading yesterday – this time it was by a chunky 30% as regulators, big banks and potential bidders all stood on the sidelines, not helping the ailing bank that only just survived the aftermath of the recent SVB failure. * SO WHAT? * It seems that the government wants to hold back in order to wait for a private sector solution but no-one seems to be moving in this banking game of chicken. The bank’s share price has fallen by about 95% so far this year. US banking contagion fears revived as First Republic shares tumble (Daily Telegraph, Simon Foy) suggests that rumours of further

rescue bids for First Republic are actually damaging confidence (“why does it need rescuing? Something must be wrong!”) and that it may actually be a good thing for the bank to fold quickly rather than prolonging the uncertainty. I suspect that no-one wants to step in without the government providing some kind of incentives and/or guarantees! The drama continues…

Elsewhere, Standard Chartered rides high on rates (The Times, Ben Martin) shows that the bank saw its quarterly profits driven to their highest level in almost ten years by higher interest rates. It also delighted investors by upgrading full-year revenue forecasts. * SO WHAT? * It seems that Standard Chartered’s recent success has been driven by the thing that has been lifting many banks recently – an expansion of the Net Interest Margin (the difference between the rate banks lend at and the rate they pay out to depositors). It has also benefited from China’s reopening given that Hong Kong and mainland China are key markets for the bank.

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!

BOMAD rules, gambling faces a makeover and Persimmon builds fewer homes…

Bank of mum and dad now supports 11m young adults (Daily Telegraph, Melissa Lawford) cites research from the Resolution Foundation which shows that 10.8m family members aged between 18 and 34 are relying on help from their parents in order to make ends meet against a backdrop of rising inflation. This comes just after Bank of England’s chief economist, realist and man-of-the-people Huw Pill said that us plebs just “need to accept that they are worse off”. * SO WHAT? * This may be just taking one remark out of context, but obviously it was a bitter Pill to swallow for those having financial troubles being lectured by an ex-Goldman Sachs chief European economist. One of the many problems is that BOMAD is not an endless source of finance – and the parents financing their offspring may be doing themselves longer term financial damage by reducing their own savings.

Then in Overhaul of UK online gambling laws could see £2 slot machine limit for under-25s (The Guardian, Rob Davies) we see that online casinos could face much tighter restrictions under new government proposals that were originally launched in 2020. These

proposals, which aim to make gambling safer, will be published today after having been postponed on numerous occasions. * SO WHAT? * Affordability checks and limiting online slot machine stakes seem to be courting the most controversy and I think that when you consider what happened when the stake limit was imposed on Fixed Odds Betting Terminals a few years back (profits evaporated overnight), you can see why opposition is so fierce. Also, having to undergo affordability checks will not be good for business as it will just be another hurdle (and intrusive one at that) for gamblers to overcome. This is just more reason for UK gambling companies to pursue overseas opportunities with even more vigour as business at home just seems to be getting more and more restricted.

In property news, Persimmon builds fewer homes as cost of borrowing increases (Daily Telegraph, Riya Makwana) shows that Persimmon, one of Britain’s biggest developers, has almost halved the number of homes constructed in Q1 in response to the aftermath of Truss and Kwarteng’s budget from hell last year. The company remains cautious about the outlook but it did concede that the number of sales and viewings has been rising in the last few weeks. The whole industry is praying for a strong spring!

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!

Kering lags its rivals, Heathrow disappoints, GSK looks healthy and PwC goes AI…

In a quick scoot around some of today’s other interesting stories, Kering: Pinault has lacked horse sense in guiding Gucci (Financial Times, Lex) shows that not every purveyor of luxury goods is doing well at the moment – Kering, which owns Gucci, has seen its share price rise by 36% over the last three years – pretty rubbish really when you consider that LVMH’s share price has tripled over the same time period! Q1 revenues at Kering were disappointing and it is hoped that a new creative director, whose first Milan show will be held in autumn, will revive the company’s fortunes.

Heathrow posts £60m loss in first quarter (Financial Times, Philip Georgiadis) highlights a poor Q1 for Heathrow as the UK’s biggest airport remained lossmaking despite a rebound in passenger numbers. The company said that customer numbers had almost doubled thanks to a big increase in leisure travel. Business travel is still recovering and represents 29% of current traffic versus 35% pre-pandemic. * SO WHAT? * At the moment, airlines are pushing back against the idea that they will have to pay higher landing fees that would help Heathrow, but I don’t think this argument can last forever.

Meanwhile, GSK in rude health as latest revenue and profit beat forecasts (The Times, Alex Ralph) shows that Q1 results from the pharmaceuticals giant came in above market expectations thanks to strong sales of vaccines, HIV and respiratory medicines. This looks like a decent enough start to the year…

Then in PwC to invest $1bn in employing AI (The Times, Katie Prescott) we see that Big Four accountant PwC has decided to throw a chunk of change at using AI to enhance its business. It will work with OpenAI to help it make its operations more efficient and productive. This isn’t PwC’s first AI rodeo, though – last month it announced a “strategic alliance” with Harvey, the start-up that develops tools for professional services and is the AI of choice for magic circle law firm Allen & Overy. It provides support on contract analysis, regulatory compliance, claims management and due diligence. PwC is looking to train its own models to make its own products. * SO WHAT? * No-one wants to get left behind and everyone is now jumping on the AI fun bus. FWIW I think that AI availability will eventually democratise many things if everyone has access to the same tech. However, it’s what you do with it that counts – and that is where humans come in! The human race is not done for just yet and companies will be looking for ways that AI can help them differentiate themselves AND justify the fees they charge!

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…

Well this is an interesting way to save for a house deposit: Couple save entire house deposit by travelling the world dog sitting for strangers (The Mirror, Nia Dalton). I guess you always get accommodation thrown in!