Wednesday 26/04/23

1. In TECH NEWS, European tech laws loom large, Twitter looks unprepared, Microsoft and Alphabet outperform expectations and Microsoft promises to unbundle Teams
2. In CONSUMER, RETAIL & LEISURE NEWS, UK grocery price inflation stays high (probably due in part to consumer goods groups shoving price rises through!), Primark’s sales climb, Ocado closes a big warehouse, McDonald’s has appetite, Pret ups subscription price and Premier Inn rebounds
3. In FINANCIALS NEWS, First Republic causes another kerfuffle, UBS is looking pretty good but Santander suffers windfall buffeting
4. In INDIVIDUAL COMPANY NEWS, GM ups its forecasts, Xpeng predicts massive consolidation, Spotify embraces AI and Netflix puts money into South Korea
5. AND FINALLY, I bring you an unusual sighting…

So Big Tech braces and does some reshuffling…

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:

TikTok, Twitter, Meta Face Countdown to Comply With West’s Toughest Content Law (Wall Street Journal, Sam Schechner and Kim Mackrael) heralds the imminent arrival of the most comprehensive European legislation covering digital content in more than a generation in the form of the Digital Services Act that will come into force in August. It will cover Big Tech (there are size requirements) as, bringing out his inner Uncle Ben from Spiderman, EU commissioner Thierry Breton said “With great scale comes great responsibility”. Until now, the companies have been able to hide behind Section 230 of the United States Code which has given them immunity for third-party content on their platforms. No longer. The new law will force companies to conduct regular risk assessments and demonstrate they are not only doing this, but also that they are putting robust systems in place! 19 companies were named yesterday as being those that are going to be subject to this new law, being classified as a “very large online platform”. ‘Unprepared’ Twitter among tech firms to face tough new EU digital rules (The Guardian, Dan Milmo) points out that Twitter has said in that past that it is not ready for the new rules – either it’s 🐂💩ing or it will be facing a fine of up to 6% of global turnover and potential suspension of service. Musk has already been warned to

📢 I’m going to be doing the monthly round-up NEXT WEDNESDAY 3rd MAY at 5pm. If you would like to attend, you will need to register HERE. See you then!

get his act together on this and he has committed to adhere to the DSA. * SO WHAT? * I am soooooo behind this regulation. It is a travesty that it has taken so long to get to this point. Not putting in safeguards has endangered (and led to the tragic end of) so many lives for the sake of letting Big Tech grow unfettered. This just goes to show how effective incredibly deep pockets and targeted lobbying are. Mind you, it’s one thing to have the right legislation – it needs to have teeth and needs to be enforced otherwise no-one will take any notice. Just look at Margrethe Vestager’s failure with trying to punish Apple. She will now be on the back foot. I think this legislation needs to work for all of our sakes!

Microsoft and Alphabet keep Wall Street happy after spending cuts (The Times, Callum Jones) shows that robust demand for cloud computing and digital advertising helped both tech behemoths beat market expectations for sales in a period characterised by cost cutting and right-sizing after a pandemic boom. Both companies are at the forefront of what is going to be the internet’s next frontier – AI (not the metaverse), which they are both racing to integrate into their respective offerings. Separately, Microsoft agrees to stop bundling Teams with Office (Financial Times, Javier Espinoza) shows that Microsoft is making the rather dramatic (pre-emptive) move of not forcing customers of its Office software to have its Teams video conferencing and messaging app automatically installed. The likes of Slack and Zoom will no doubt be especially pleased about this although maybe it is already too late for plucky Brit company Hopin. * SO WHAT? * Before you start thinking how magnanimous Microsoft are becoming, it is highly likely that they are finally separating out Teams in order to pre-empt a potential anti-competition investigation.

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!

UK grocery price inflation is still high, consumer goods companies coin it in, Primark puts in a good performance, Ocado closes a warehouse, while McDonald’s, Pret and Premier Inn have different experiences…

Britons turn to stores’ bargain ranges as grocery price inflation stays above 17% (The Guardian, Sarah Butler) cites the latest data from Kantar which shows that grocery inflation remained high while shoppers continued the trend of buying own-labels to save the pennies. OK, so grocery price inflation was 17.3% versus 17.5% for the previous month, but that’s still high! Consumer goods groups upbeat after raising prices (Financial Times, Alistair Gray, Chris Giles, Peter Wells and Claire Bushey) provides at least some explanation for  this as the likes of Nestlé, PepsiCo, Coca-Cola and Kimberley-Clark all reported that they have been able to put prices up as the consumer remains robust in the face of the ongoing cost-of-living crisis. P&G, the world’s biggest maker of household goods, even hiked up profit margins for the first time in two years as it managed to lift prices at a greater rate than its expenses! * SO WHAT? * The consumer goods party can’t last forever, and some observers will be pointing to cracks in US consumer confidence as a potential sign that the days of price hikes may be numbered. For now, though, the consumer goods companies are milking it!

Among the retailers themselves, Primark sales climb as prices rise and city centre stores boom (The Guardian, Julia Kollewe) highlights a solid first half performance from the clothing retailer thanks to the return of tourists and office workers. It also said that its click & collect service will be rolled out London and the southern US but cautioned that sales growth was likely to lose momentum as the cost-of-living crisis and inflation effects continue to chip away at disposable incomes. * SO WHAT? * It sounds like Primark is doing all the right things at the moment and that its click-and-collect service has proved to be particularly popular. TBH I think this is a good compromise for Primark which has consistently said that it wanted to avoid selling online, arguing that doing so entails building a big and expensive delivery network (or paying to outsource it!) and addresses the perennial problem suffered by online apparel retailers – that of having returns. This way, Primark gets the best of both worlds – online convenience and footfall in their stores when punters go to pick up their stuff – with the added off chance that they’ll see something they fancy in-store and buy that as well!

It sounds like there might be some more price rises, but there is an end in sight – which will no doubt be welcomed by its customers! The company says that once things have calmed down properly, they will be aiming to bring prices down.

There’s rather more sobering news in Ocado to close Hatfield warehouse, putting 2,300 jobs at risk (The Guardian, Sarah Butler) as the Ocado/M&S JV is going to shut down its oldest warehouse and switch orders to be handled at its other automated warehouses, including a new site that is set to open in Luton later on this year. * SO WHAT? * As things stand, Hatfield processes about 20% of Ocado.com’s weekly orders – so this is a big deal (Hatfield was Ocado’s first automated warehouse and opened in 2002!). Although Ocado did well under lockdown, sales have lost momentum since then to the extent that it said in February that it was pausing the rollout of new UK distribution centres.

In leisure/restaurant-related news, McDonald’s has appetite to grow sales (The Times, Callum Jones) shows that sales and profits at the fast food chain came in above market expectations in their final quarter as demand for its wares remained strong. It also saw higher footfall despite raising its prices! In the UK, Pret coffee subscription price soars (Daily Telegraph, Daniel Woolfson) shows how the company is trying to combat a 200% rise in energy costs, a 40% increase in coffee bean prices and a 20% pay increase for worker by raising the price of its monthly subscription scheme from £25 to £30, although it is sweetening the deal by offering a 10% discount on food whilst renaming the service “Club Pret”. Meanwhile, Premier Inn sales recovery boosts Whitbread profits (The Times, Dominic Walsh) shows that shares in Premier Inn parent Whitbread went stronger in trading yesterday as the hotel chain continues to outperform rivals thanks to its “significant profit uplift”. * SO WHAT? * It really does seem that many people who can still spend are doing so. A part of me wonders whether any of this is due to being locked down for so long during Covid and that people are more willing to stretch their finances in order to go out, socialise and travel around. Regarding Premier Inn’s case, it is looking likely that there could be a case for an outside to buy the business because it owns a lot of its properties. Presumably, a buyer (it’ll probably be a private equity company, let’s face it!) could scoop it up and do a sale and leaseback (the same idea as Clayton, Dublier & Rice had when it bought Morrisons). Mind you, loading up with debt to execute that move has become a lot more expensive now with higher interest rates…

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 still isn’t out of the woods, UBS looks good and Santander takes a windfall knock…

US regulators scramble to stabilise lender First Republic (Daily Telegraph, Simon Foy) shows that shares fell by 48% to a record low yesterday after it revealed that a massive $100bn of withdrawals had been made between January and March, which was way more than analysts had been expecting. This all happened when SVB collapsed, sending depositors into a frenzy of deposit withdrawals. * SO WHAT? * This is clearly a knee-jerk reaction, but my feeling is that there could be a serious bounce-back here because I just can’t see First Republic being allowed to fail, particularly as it got a lot of high-profile help with its finances in the aftermath of the SVB collapse. Am I being too optimistic, though??

In Europe, UBS set for biggest banking profit once Credit Suisse deal closes (Financial Times, Owen Walker) shows that the Swiss banking survivor is on track to announce its biggest ever banking profit next quarter once it completes its takeover of Credit Suisse, thanks mainly to the fact it picked up the latter for peanuts in order to rescue it! The current results, however, were not great. * SO WHAT? * Clearly, there were some costs incurred in the rescue but

UBS saw some big money inflows as it was seen by customers as a safe pair of hands versus other banks and its wealth management business did particularly well. However, UBS/Morgan Stanley: Credit Suisse should help Ermotti close the gap (Financial Times, Lex) reckons that once this Credit Suisse thing beds down, the valuation gap will close between itself and rival Morgan Stanley perhaps 7 to 10 years earlier than it would have otherwise!

Then in Santander’s profits dented by €224m hit from Spanish windfall tax (Financial Times, Barney Jopson and Stephen Morris) we see that the Spanish bank took a serious hit from paying a hefty windfall tax bill that was roughly equal to about 10% of its Q1 profits! Still, it managed to post a very small uplift in earnings, which surprised analysts who expected a fall. * SO WHAT? * It sounds to me like things will improve significantly for Santander as no more windfall tax payments are due this year (although there will be another bill early next year). Given that interest rates are going to remain high for some time yet, I would have thought there will still be some upside to come 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!

GM gets positive, carmakers bet on consolidation, Spotify embraces AI and Netflix throws money at South Korea…

In a quick scoot around some of today’s other interesting stories, GM Raises 2023 Profit Outlook, Kills Off Chevy Bolt EV (Wall Street Journal, Mike Colias) shows that GM was so confident about its performance that it decided to raise its full-year profit forecasts. It also announced that it will be discontinuing the Chevrolet Bolt from its lineup at the end of the year as it makes the transition to newer battery tech.

Staying with the automotive sector, Only 10 carmakers will survive global EV battle, says Tesla rival Xpeng (Financial Times, Gloria Li and Edward White) cites the vice-chair of Chinese EV maker Xpeng as saying that there will be massive consolidation within the industry as competition hots up (a bit like the batteries they use 🤣). * SO WHAT? * I can certainly imagine this happening as the move to electrification is expensive and I would have thought that Chinese companies will be a part of this, although this is obviously dependent on what happens with US-China and trade/takeover restrictions. If Chinese companies can merge with other companies, it may help with boosting their sales quickly as they could then piggy-back off better-known makes in regions where they currently have no presence. I do think, however, that there needs to be a lot more consolidation among Chinese carmakers themselves, though, in order to position themselves well for a competitive domestic market.

In streaming news, Spotify vows to drive ‘explosion’ in new music generated by AI (Daily Telegraph, James Titcomb) is an intriguing headline, isn’t it?! Spotify chief, Daniel Ek, says that generative AI could lead to a sudden burst of songs produced by amateur musicians and that Spotify could help them directly by putting them directly on the app, rather than them having to go through traditional music publishers. Separately, Spotify’s user growth numbers came in above market expectations yesterday, pushing up the share price. * SO WHAT? * Although AI making music sounds like an interesting prospect, there is the thorny issue of how the bots were “trained”. At the moment, you can’t really tell, but if AI regulation gets tightened to the extent that this sort of thing gets revealed, then excitement could be dead in the water. Maybe Ek is using this as a veiled threat to hit the music publishers with.

Then in Netflix invests in South Korea hoping for next Squid Game (Daily Telegraph, James Warrington) we see that the streaming giant has announced it will be investing a chunky $2.5bn in South Korea over the next four years to find its next smash hit! This will be double the amount it has invested in the country since it started to do so in 2016. * SO WHAT? * I think this is a brilliant idea. It seems to me that Koreans are absolutely brilliant at coming up with a formula of making content that works and then successfully being able to repeat it – just look at the success of K-pop and K-drama! If you look at these areas, they are highly regimented in structure – and they just work. I’m looking forward to seeing how this works out! 

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…

Just imagine. You’re at work, everything’s just going same-old, same-old and then this happens: Moose on the loose casually tucks into popcorn after sneaking into cinema (Metro, Katie Boyden). For some reason, it made me think of this classic TV ad. I’m so sorry if you can’t forget this song for the rest of this month 🤣🤣🤣. Maybe it was the moose on the wall that made me think of it…