July 20, 2023 • 29 mins
In this episode, Parth & Abdul discuss the recent earnings releases in the financial sector. Furthermore, they discuss the Microsoft acquisition of Activision and its potential ripple effects on the gaming industry, and the "Taylor Swift Effect" singlehandedly battling recession.
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Episode Transcript
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(00:00):
Good afternoon, ladies and gentlemen.Welcome back to the investis Diary podcast.
You know we help you work smarterand harder by providing a weekly market updates
and insights. We're back again thisweek with our regularly scheduled podcast. Today
we will discuss the recent earnings thatwere published, Microsoft's acquisition of Activision and
talk about the inflationary effects of TaylorSwift's new tour in Australia. So jumping
(00:22):
into earnings, the SMP five hundredbanks reported higher provisions for loan losses in
the second quarter the past week.Six of the twelve companies were big banks
in the industry, including City Group, JP, Morgan, Chase, Wells
Fargo. The industry is reporting thehigh, reporting the highest year over year
earnings growth of all five industries inthe financial sector at twenty five percent.
(00:46):
However, it is interesting to notethat the banks the banks is also reporting
higher provisions for loan losses in thesecond quarter relative to the second quarter in
twenty twenty two. However, theseprovisions have no impact on top line growth,
but do have impact on bottom linegrowth as they are treated like an
expense. Regarding the higher provisions forloan losses in the banks industry. It's
(01:08):
also important to note that these increasedprovisions can be seen as you know,
a cautionary measures taken by the banksto safeguard their financial health and an uncertain
economic climate, a disclution for banksto proactively account for potential risks and ensure
they have adequate reserves to cover anylosses that may arise. And while these
(01:30):
provisions may impact bottom line growth ina short term, it's essential to consider
the long term benefits that you knowthese actions have and by accounting for losses,
these banks are positioning themselves to navigatepotential challenges and maintain financial stability and
in face of you know, economicunwines. Yeah, and just yesterday,
(01:55):
Goldman Sachs also release their earnings fortheir second quota of twenty to eighty three,
and the most notable thing was thattheir second quota investment banking feasts and
FYC ten AT revenues were significantly loweron a year on year basis. In
addition, Goldman also warned its investorsof write downs on commercial real estate and
impairments tied to its planned sale ofthe fintech unit green Sky. But despite
(02:19):
the downbeat report. The shares forGolden Sacks are relatively stable as it had
been well telegraphed and it was wellknown by analysts that it would be quite
a tough quota for the investment bank. Moving on from earnings to something more
interesting was that Microsoft share hit arecord high as they now looked to monetize
(02:39):
AI or artificial intelligence tools to capitalizeon this investor and user appetite. So
a few episodes ago we reported thatMicrosoft had entered into a ten year partnership
between with open Ai that was worthten billion dollars and that boosted the markets
struct sure price by about fifty percentover the last couple of weeks. And
now Microsoft has launched this copilot subscriptionservice which adds artificial intelligence to the companies
(03:06):
well most popular and most well knownoffice products such as Microsoft would Marcrosoft,
Excel, Microsoft Teams and etc.And the cost of this additional AI service
will be an additional thirty dollars permonth, which could increase monthly prices for
certain customers or consumers by about eightythree percent, which would bring an additional
source of revenue for the film.As Microsoft products are not essentially seen as
(03:29):
core for enterprise films, and thepotential of the scale of this is just
massive. So just in the lastlast quarta, over almost four hundred million
people use the commercial versions of theOffice three hundred and sixty five software.
Now that is we're talking about commercialversions. I know several people that are
(03:51):
using well bootlegg or just you knownot commercial versions that they don't have to
pay for well, but I feellike with this AI implementation they could also
convert a few of those customers topaid subscribers, as those bootleg versions will
not have access to their AI database. On top of that, just to
add one final bit, is thatbang Chat, which previously was not even
(04:14):
close to you know, Serie orGoogle Assistant, also gives now an aipowered
chat for work d commercial data protection. And this chat data is not saved
and Microsoft has no eyes on thedata or access to the data. Similar
So, just a couple of monthsago, Open AI was in a bit
of a scandal as some private companyconfidential information was leaked and this would a
(04:36):
super considering what Microsoft has said wouldnot be possible with big Chat enterprise.
And so far the news of thishas been quite positive, as most investment
banks bumped up their price target forMicrosoft. So Barclays raised its price target
to four hundred twenty five from threehundred and thirty six. That isn't massive
(04:57):
increase. Bank of America, VelsFargo, and JP Morgan increased the target
prices to four h five four hundredand three eighty five, respectively. Right,
and talking about Microsoft, moving onto you know, a monumental deal
that has sent shockwaves through the gamingcommunity. On January eighteenth of twenty twenty
two, Microsoft made a ground bakingannouncement reviewing their plan to acquire Activision Blizzard
(05:24):
for a staggering sixty eight point sevenbillion in an all cash deal. That's
right. This acquisition would position Microsoftas the third largest gaming company globally,
just behind Tencent and Sony. Andit's a it's quite a bold move which
showcases that Microsoft is committed to committingits resources as it believes that the gaming
(05:46):
industry has huge growth potential moving forward. Right, And this deal is expected
to close sometime in twenty twenty three, pending some you know, regulatory approval.
And just a few months ago,in July, Microsoft made another citing
announcement they will be establishing a newdivision called Microsoft Gaming to oversee all the
gaming businesses, including Activision Blizzard.Yeah, and just to reemphasize what I
(06:09):
said, the introduction of this MicrosoftGaming division demonstrates the firm's commitment to especially
consolidating their gaming ventures under one umbrella. And this strategic move, well,
it just essentially aims for drive innovation, enhance the gaming experience for players worldwide
through their Xbox Game Pass indeed parts, but it's also not forget. This
(06:31):
acquisition has sparked mixed reactions within thegaming community. While some gamers have expressed
concerns about potential anti competitive practice buyMicrosoft other seeds as an opportunity. You
know, you look at Microsoft,it's you know, three three show indoor
company compared to Sony, which is, you know, hundred billion. So
it's like you look at that,and you know, you fear that there
(06:55):
might be some you know, monopolistictender exactly, So there is Some people
have waste their concerns, and obviouslyregulatory people have also, this is why
it's been delayed this long. Butabsolutely though, and some important to acknowledge
these valid legal concerns that have beenraised by gamers and regulatory bodies. So
regulatory bodies in the United States,the European Union, the United Kingdom have
(07:17):
all expressed apprehension regarding the potential anticompetitive behavior that is stemming from this composition,
from this accreation storry. So justput some numbers out there. Right,
As you mentioned, Microsoft is thesecond largest company in the world.
It's market cap is currently two pointfive trillion dollars, almost three trillion dollars.
Sony, on the other hand,is a Japanese company whose market cap
(07:38):
is around hundred billion dollars, andActivisions market cap is around seventy billion dollars.
So Microsoft is essentially acquiring a companythat is similar sized to Sony to
compete with Sony. It's wild butum, you know, these concerns again
we just highlighted earlier, but theyreally revolve around Microsoft's market power and the
potential for them to limit competition byleveraging the control over Activision. You know,
(08:01):
regulators are specifically wary of any actionsthat could impede gamer's ability to enjoy
titles. You know, as agamer myself, having games exclusive to just
one platform, you know, ruinsthe experience, and that's something that these
regulators are looking out for and Sonyhas been lobbying so their main competitor.
(08:22):
Sony has voiced opposition to this acquisitionand their argument is essentially that this would
this deal, if granted, wouldgrant Microsoft an excessive amount of power,
making it very hard for Sony tocompete. And Sony has specifically raised concerns
about the possibility of Microsoft making Activisionblizzards popular games which has Call of Duty
(08:43):
exclusive to the Xbox console. Andthe reason why this game, Call of
Duty is very important if you're notfamiliar, is that Call of Duty since
it's launching two thousand and nine,has been the highest selling game on every
platform, and thus the sale ofCall of Duty on PlayStation actually accounts for
a major source of revenue for Sony, and if made exclusive to the Xbox
(09:07):
console, would almost eliminate Sony outof the competition. However, it's also
it's important to note that Microsoft hasnot made any official announcements regarding exclusivity of
games like Call of Duty or evenOverwatch. In fact, they recently signed
a ten year deal with Sony guaranteeingavailability of Call of Duty games on the
PlayStation consoles to at least thirty three. Furthermore, Microsoft has expressed their commitment
(09:33):
to supporting Overwatch on all platforms exactlythough. So while exclusivity does remain uncertain,
it's clear that Microsoft's intent with thisacquisition is not just exclusivity deals for
the games under Activisions umbrella. They'relooking to harness the synergies beaving their own
gaming expertise and Activisions vast portfolio ofgames to expand their gaming business and essentially
(09:58):
dominate that industry. All right,Um, this this move allows Microsoft to
strengthen this market position and bring fortheven greater innovation to gamers worldwide. The
impact of this acquisition on the gamingindustry as a whole cannot be overstated.
It marks a major turning point inMicrosoft's new division that they made, the
(10:20):
Microsoft Gaming Division, but also forgamers themselves. Um, it depends,
you know. It will now influencewhat consoles people buy. I'm you know,
when you look out to buy console, you buy console for the games
that are available on the console.Um, you look for you know,
any exclusive deals. So it willshake up the market for gamers and for
(10:41):
game producers too. Yeah, sojust take let's take a closer low gas
to why this deal has been goingon for so long and what state it
is currently sitting at. So theinitial challenges and delays faced was this acquisition
was primarily as we talked about,regulatory concerns causing delays, and regulators in
(11:03):
the US, EU and the UKall expressed concerns about potential antitrust issues arising
from Microsoft's expanded market power and resources. Right authorities were concerned that Microsoft might
leverage it control over activisions games tocreate barriers for gamers who wish to play
on competing consoles. They aim toensure fair competition and equal access for players
(11:26):
across all platforms. Yeah, andlet's not forget that they're still ongoing negotiations
with the regulators. So although thedeal has phased obstacles, it is likely
to receive approval with certain conditions imposed. And these conditions may include divestiture or
divestment or certain assets, or commitmentsto maintain availability of games on competing consoles.
(11:48):
That's correct, and while the acquisition'sfate is not yet sealed, it's
evident that this deal carries significant weightfor the gaming industry. Has alluded to
earlier, the outcome will shape thefuture the gaming In end, the competitive
landscape. But delving into the detailsof this monumental acquisition, Microsoft, the
Microsoft's acquisition of Activision encompasses their entireportfolio games, ranging from iconic franchises like
(12:15):
Call of Duty to titles like WorldWarcraft and Candy Crush, and they would
also acquire a bunch of intellectual propertysuch as their esports division and which is
responsible for running their prestigious Call ofDuty League and the Overwatch League. And
these acquisition creates exciting synergies for Microsoft. By leveraging blizzards gaming expertise, Microsoft
(12:37):
can elevate its own gaming businesses tonew heights. The combination of their strengths
has the potential to redefine the gamingindustry. Absolutely. Microsoft is essentially positioning
itself to compete with effectively other techgiants like alphabet or Google and Amazon who
are investing heavily in gaming. Aswe know, Google last year tried to
(12:58):
launch their own cloud gaming platform calledGoogle Stadium, and only a couple months
ago they actually announced they're shutting itdown due to a lack of adoption because
the Xbox and PlayStation were essentially justkilled it right, and the impact acquisition
goes far beyond Microsoft's own growth,it is a catalyst for innovation and advancement
in the gaming industry as a whole. Gamers can look forward to a more
(13:20):
diverse and exciting range of games andservices as a result of this union.
Yeah, and the deadline for finalizingthis transaction has now been pushed to October
eighteenth of this year, which provides, in my opinion, ample time to
address regulatory concerns. And this extensionfollows recent approvals in forty countries and the
(13:41):
recognition that the deal is actually favorablefor competition and competitors in the industry,
and the boards of directors of bothcompanies have authorized the transaction or the acquisition,
which demonstrate their confidence in resolving anyoutstanding issues yep, and the Microsoft's
Vice chair and president, Brad Smithis also emphasized that the extension allows enough
(14:03):
time to work through the financial thefinal regulatory matters. This move demonstrates the
commitment of both Microsoft and Activision tonavigate the complex relatory landscape and reach a
favorable outcome. Alongside this extension,both companies have agreed to a higher termination
fee and a new commercial arrangements.So this includes a termination fee of three
point five billion dollars if the dealdoesn't close by the by August, estimating
(14:28):
to four point five billion if theSeptember deadline also is not met without any
finalization. Yeah, and regulators inthe UK have been the main significant regulatory
bodies that have played a significant rolein timeline adjustments. The original blockage was
over cloud gaming concerns that was promptedbecause of Microsoft, you know, deciding
(14:50):
to acquire and this was appealed byMicrosoft while simultaneously working on a proposal to
sell its UK cloud gaming rights whichwould address the regulatory concerns and the best
place. Despite these challenges encounter alongthe way, Microsoft and Activision Blizzard are
are resolute in their pursuit of thismonumental which is not mended. They initially
(15:13):
put an offer for sixty eight billion, but I'm now agreed to a price
of seventy five billion dollars and tothe certified seven billion dollars mergion merger.
Both companies recognize the immense potential forgrowth and innovation that this merger brings to
the table. Microsoft CEO Satya Nadelafirmly believes that joining forces with Activision will
(15:33):
unlock new opportunities and propel the gamingindustry forward. They see this as a
means to expand Microsoft's presence in gamingand reaching an even broader audience. An
Activision is equally enthusiastic about the merger. They see Microsoft technology and resources as
invaluable assets that can enhance their gamingofferings and deliver even more immersive experiences to
their players. Sure, so,now I just want to take a brief
(15:56):
pause and talk about the customer perspective, perspective of the average individual who's looking
at this acquisition from the outside,right, and are the what are the
reasons why some people might actually wantthis acquisition to go through. So from
a consumer perspective, from what Iunderstand, the CEO of Activision, Blizzard
had terms of sexual assault lawsuits,he was named as a pedophile, et
(16:18):
cetera, et cetera, and hewas on the verge of getting kicked off
from the company, and this acquisitionby Microsoft will essentially remove him from his
role as a CEO. That isone of the reasons why people want this
acquisition to go through. Another reasonwhy people want this acquition to go through
is if you are an Xbox gamer. The Xbox game Pass will become a
way better value of money because youwill get new games added to the game
(16:40):
Pass at the same price. Andthe third reason, which I think a
lot of people are justifying this acquisitionis because Sony has done similar things in
the past. They have been abully to smaller companies, acquired their IP
and put it on you know,the PlayStation Online Pass or whatever it is.
I'm not really a gamer, soI don't know exact terms, but
in my opinion, all these pointsare invalid, and I'll tell you why.
(17:03):
Firstly, the first point I talkedabout how the CEO of Activision is
a po and a sexual assault andall that. Oh, yes, all
these comments are true, so I'mnot arguing against that. But the point
is that this acquisition will see himget a payout of approximately three hundred to
four hundred million dollars okay, becauseof all the equity that he owns in
the company. So sure, hewill leave the company, but this acquisition
(17:23):
is giving him essentially a lifetime payoutfor generations. Okay, A four hundred
million dollars payout is pretty comfortable.Yeah, I get that, buy I
disagree. I think I think it'sgood to remove people like that from your
company. Um people like that area representation of you know, what you
do and as a as a gamer, you know you you know, community
is a very big part of gaming. You want people that lead your community
(17:45):
to uphold values that you know thatyou believe in and have the right um,
you know, ethics and moral standards. So although he's getting a payout,
I think it's better for the communitylong term for the people that are
building these games to get people likethis out of the communion. He's a
leader and he shouldn't be in thisposition, if you know these allegations are
true. Yeah, But my pointhere in this argument is because activision prior
(18:10):
to this acquisition was allowed, thecompany was going on a downhill, and
the downhill was essentially speared by thenegative press around their CEO. So it
was only a matter of months untilthe boat of directors in my opinion,
would have kicked out the CEO anywaywithout the three hundred four hundred million dollars
payout. Okay, So this acquisitionessentially allows him to get kicked out of
the company regardless, but get apayout on top of that. Okay.
(18:33):
Because of that concern that concern isnot valid in my opinion, because he
would have been forced out of thecompany anyway. All right, so you're
not happy with the payout, butyou're happy with the leaving. Yeah of
course. Okay, yes, Iget that too, I guess. Yeah,
rewarding bad behavior is not good.Um, yeah, I'll concede.
I'm on the same people. Movingon to the second point that I made,
which was about how the Xbox GamePass will become a better value for
(18:53):
money. While that is true forthe short term that yes, Xbox Game
Pass will give you an access tomore games for a low price compared to
whatever Sony can give you, thiswill only last for a few years,
just as soon as the UK regulatorsproposed that the acculim can go through the
Xbox Game passes price when up byone dollar. Now, I know what
(19:15):
you will say that one dollar isnot a significant amount, you know,
it's negligible, whatever, whatever,But this will happen every year, one
dollar a year, and over time, once the ten year agreement of call
of duty exclusively runs out, itwill move exclusively to Xbox and then boom.
Then then the Xbox has a monopolyand they can bump up the price
to one hundred dollars. What areyou gonna do? Yeah, no,
(19:37):
I agree with the whole Yeah,monopoly, they can charge what they want.
I still feel like it it willbe it won't be an nessary better
value for money, but the gamepass will be superior definitely to the Sony's
game pass. Sony has a similarmodel, but the game pass will definitely
superior, better value for money.I'll agree there. Yeah, I think
(20:02):
I don't think it would be chargedfairly just because of because they later.
And lastly, one of the argumentsfor why people might think they should go
through is because Sony has done similarthings in the past. But just to
put this into scale, right,like, yes, Sony has done similar
things in the past, but sohas every company. Sony has a market
cap of one hundred billion dollars.Microsoft has a market cap of two point
five trillion dollars. Microsoft is quiteliterally twenty five times bigger than Sony.
(20:29):
So yes, Sony has done thingsin the past that were, you know,
unethical, but they have done itat a significantly smaller scale, whereas
Microsoft is essentially acquiring a company ofthe same size as Sony. Yeah,
I don't think in all cash,don't. I don't think it's about the
size. I think the practice it'sstandard in business, you know, Yeah,
(20:49):
it's common standards. So having thisas a reason as a reasoning to
why you're doing something not the bestlogic. But I understand. I'm I'm
not against Microsoft doing this. Ithink's fair game. If they passed you
know, all the anti competitive rules, and I think it's it's yeah,
(21:10):
all in good fairness. Yeah.So, like, while I personally think
the acquisition should not go through justbecause it would make the gaming industry less
competitive and give Microsoft an insane edgein the long run, which would also
negatively affect consumers like ten years downthe line, yea, if Microsoft is
able to do so, then allfair game, Yeah it is. I
think One more thing that I'd liketo point out that no one has mentioned
(21:32):
much is that the judge in theUK who was essentially, you know,
deciding if the acquisition should go through, the judge's son, just like a
couple of weeks during the whole trialwas going on, got a job at
Microsoft. Now, typical judicial ethicswould suggest that the judge should recuse him
or herself from the case, butthey didn't. And I don't know if
(21:56):
that had anything to do but theapproval, but one can assume, well
assume or moving on to some morefunny news that um has you know,
taking, I think social media bystore is a Taylor Swift's new tour eras
that's coming to Australium. Fans alsoknown the Swifties, are scrambling to secure
tickets. Your sparking discussions about theeconomic repercussions of this cultural phenomenon part Maybe
(22:22):
could you gives a little insight beforewe, you know, dive into this.
You know, you're explaining to methe little background behind this whole h
Taylor Swift, you know drama.Yeah, so before any Swifties attack me,
I've done about I've done. I'mnot a Swift tie, so I
don't know the exact details, butI'll try my best to summarize what has
happened and what this era store hasspawned from. So from what I understand,
(22:47):
when Taylor Swift was younger, theessential controller and owner of her IP
was her dad, and so herdad would control the songs, who they
were sold to, what record labelshe was signing with, how much money
she would get paid out, etc. Etc. And so a couple of
years ago, Taylorshift's dad, whohad access and ownership of the IP,
(23:07):
sold the IP to a music produceror a music label who was owned by
the guy named Scooter Braun. AndScooter Braun purchased three albums of Taylor Swift
for approximately three hundred million US dollars, and his plan was that he would
essentially own these songs and continue earningroyalties which would easily surpass surpass three hundred
(23:30):
million dollars. And when Taylor Swiftcame back onto the scene to record some
more songs, she was not happywith this as she did not have any
She didn't agree to that deal.She didn't even know what the deal happened.
She found out about this three hundredmillion dollar deal on the internet,
just like the rest of us,and she was angry. But instead of
just being angry and sitting, youknow, sitting around her room being depressed,
she looked at the contract that wassigned and what she realized was that
(23:55):
there is no clause in the contractthat prevents her from rerecording this same songs
that she recorded that were sold toScudo Braun. And so what this era's
tour that I understand has been goingon is about her first album that she
has rerecorded to essentially tell scootle BraunTop because Scooter Braun did that entire thing
(24:19):
unethically and she wanted all the royaltiesfrom her songs. So she has essentially
rerecorded all her original songs and rereleasedthem in a new album called Eras,
and she is now going around theUnited States for the time being and planning
to come to Australia to present thesesongs. And just from statistics so far,
what I understand is the new rerecordedsongs are already three times more streamed
(24:42):
than the original songs that were purchased. And this is only one album and
there are two other albums that werepurchased. So my assumption is she's going
to rerecord those two albums and goon another to the same thing. Wow.
That's very interesting, but it's alsointeresting to see how this tour impacts
not only the fans, but alsovarious sectors the economy. Research suggests that
Tailswift's nightly ticket sales alone range fromeleven to twelve million dollars, and her
(25:07):
US tours on track to become thefirst to gross a gross one billion dollars.
But it's not just tail Swift herselfwho benefits from these concerts. The
tour has the potential to boost localeconomies by an estimated four point six billion
dollars. Attendee splurge on accommodation,hospitality, clothing, and travel, creating
a ripple effect of economic activity.This surge and spending can lead to an
(25:32):
inflationary impulse AMPTI term the t Swiftlift. We've seen evidence of this phenomenon
when Tailswift performed in Nashville. Revenueper hotel room in the city during her
visit was doubled that of the sameperiod of the periods year. And it's
not just Taylor Swift that this inflationaryimpact is unique to. Beyonce had a
(25:55):
tour in Sweden that also contributed toa higher than expected inflation that was I'm
really driven by increased prices in hotelsand restaurant sectors, specifically the Swedish meatballs
as they were very highly priced,and the essentially the Swedish government Essentially he
released a statement that said that Beyoncehad actually caused or had contributed to the
(26:17):
inflation, but and no other newsarticles were published about it, and a
few weeks later one of the newsjournals published that while it wasn't Beyonce entirely,
that Jove the inflation because inflation isstill high weeks after she has left.
So it feels like these countries thatis looking for a reason to blame
someone for the inflation. But yeah. The Office for National Statistics and Britain
(26:40):
also noted that there's a thirty twoyear high in inflation relating to admission fees
for live music events. As talesst Australian tour approaches, fans are already
making travel and accommodation arrangements even beforesecuring tickets. Anecdotal evidence suggests that prices
are already increasing. For example,the cost of a room, maritime suits
(27:00):
and Sydney's CBD on the twenty fourthof February, the middle Saturday of swifts
three nights stand is significantly high comparedto previous Saturday nights. However, as
we have seen and as we understand, despite these price increases that are already
evident, the RBA probably does notneed to be concerned about inflationary pressures being
(27:22):
caused by Tailor Swift's tour While fearsof inflation do persist, the temporary nature
of the spending boost associated with thetour would be mitigated because it is a
very short term boost all right,and the spending surve generated by the Tailor
Swift's concert is likely to be concentratedover a few days. While it might
show up in monthly inflation date data, it is unlikely to have a significant
(27:45):
effect on quarterly data. The RBAwill likely view it as a temporary phenomenon
and look through it. On topof that, it's essential to consider the
broader economic landscape. By the timeTaylor Swift's tour arrives, the economy might
already be grappling with several interest raterises, which could wait on household spending.
Right the timing of the tour coonsides with potential interest rate hikes,
(28:08):
and this might moderate the overall impactof any inflationary pressures resulting from the concerts.
Additionally, the boost in related employment, accommodation demand, and transferred fares
can provide a welcome respite for theeconomy exactly, And while there maybe temporary
spikes and inflation, the overall impact, in our opinion, is likely to
(28:30):
be modest and quite transitory in nature. Ultimately, the impact of Tailor Swift's
tour on inflation is likely to betemporary, A temporary blip rather than a
sustained increase. Is crucial to viewit in the larger economic picture and recognize
the broader factors influencing inflationary pressures.And with that, we would like to
conclude the episode. Thank you forjoining us in this in depth discussion on
(28:53):
earnings, Microsoft's accilition of Activision andTaylor Swift. Thank you for listening and
tuning in. We're right to staytuned for more episodes in the future.
Until next time, Peace,
Good afternoon, ladies and gentlemen.Welcome back to the investis Diary podcast.
You know we help you work smarterand harder by providing a weekly market updates
and insights. We're back again thisweek with our regularly scheduled podcast. Today
we will discuss the recent earnings thatwere published, Microsoft's acquisition of Activision and
talk about the inflationary effects of TaylorSwift's new tour in Australia. So jumping
(00:22):
into earnings, the SMP five hundredbanks reported higher provisions for loan losses in
the second quarter the past week.Six of the twelve companies were big banks
in the industry, including City Group, JP, Morgan, Chase, Wells
Fargo. The industry is reporting thehigh, reporting the highest year over year
earnings growth of all five industries inthe financial sector at twenty five percent.
(00:46):
However, it is interesting to notethat the banks the banks is also reporting
higher provisions for loan losses in thesecond quarter relative to the second quarter in
twenty twenty two. However, theseprovisions have no impact on top line growth,
but do have impact on bottom linegrowth as they are treated like an
expense. Regarding the higher provisions forloan losses in the banks industry. It's
(01:08):
also important to note that these increasedprovisions can be seen as you know,
a cautionary measures taken by the banksto safeguard their financial health and an uncertain
economic climate, a disclution for banksto proactively account for potential risks and ensure
they have adequate reserves to cover anylosses that may arise. And while these
(01:30):
provisions may impact bottom line growth ina short term, it's essential to consider
the long term benefits that you knowthese actions have and by accounting for losses,
these banks are positioning themselves to navigatepotential challenges and maintain financial stability and
in face of you know, economicunwines. Yeah, and just yesterday,
(01:55):
Goldman Sachs also release their earnings fortheir second quota of twenty to eighty three,
and the most notable thing was thattheir second quota investment banking feasts and
FYC ten AT revenues were significantly loweron a year on year basis. In
addition, Goldman also warned its investorsof write downs on commercial real estate and
impairments tied to its planned sale ofthe fintech unit green Sky. But despite
(02:19):
the downbeat report. The shares forGolden Sacks are relatively stable as it had
been well telegraphed and it was wellknown by analysts that it would be quite
a tough quota for the investment bank. Moving on from earnings to something more
interesting was that Microsoft share hit arecord high as they now looked to monetize
(02:39):
AI or artificial intelligence tools to capitalizeon this investor and user appetite. So
a few episodes ago we reported thatMicrosoft had entered into a ten year partnership
between with open Ai that was worthten billion dollars and that boosted the markets
struct sure price by about fifty percentover the last couple of weeks. And
now Microsoft has launched this copilot subscriptionservice which adds artificial intelligence to the companies
(03:06):
well most popular and most well knownoffice products such as Microsoft would Marcrosoft,
Excel, Microsoft Teams and etc.And the cost of this additional AI service
will be an additional thirty dollars permonth, which could increase monthly prices for
certain customers or consumers by about eightythree percent, which would bring an additional
source of revenue for the film.As Microsoft products are not essentially seen as
(03:29):
core for enterprise films, and thepotential of the scale of this is just
massive. So just in the lastlast quarta, over almost four hundred million
people use the commercial versions of theOffice three hundred and sixty five software.
Now that is we're talking about commercialversions. I know several people that are
(03:51):
using well bootlegg or just you knownot commercial versions that they don't have to
pay for well, but I feellike with this AI implementation they could also
convert a few of those customers topaid subscribers, as those bootleg versions will
not have access to their AI database. On top of that, just to
add one final bit, is thatbang Chat, which previously was not even
(04:14):
close to you know, Serie orGoogle Assistant, also gives now an aipowered
chat for work d commercial data protection. And this chat data is not saved
and Microsoft has no eyes on thedata or access to the data. Similar
So, just a couple of monthsago, Open AI was in a bit
of a scandal as some private companyconfidential information was leaked and this would a
(04:36):
super considering what Microsoft has said wouldnot be possible with big Chat enterprise.
And so far the news of thishas been quite positive, as most investment
banks bumped up their price target forMicrosoft. So Barclays raised its price target
to four hundred twenty five from threehundred and thirty six. That isn't massive
(04:57):
increase. Bank of America, VelsFargo, and JP Morgan increased the target
prices to four h five four hundredand three eighty five, respectively. Right,
and talking about Microsoft, moving onto you know, a monumental deal
that has sent shockwaves through the gamingcommunity. On January eighteenth of twenty twenty
two, Microsoft made a ground bakingannouncement reviewing their plan to acquire Activision Blizzard
(05:24):
for a staggering sixty eight point sevenbillion in an all cash deal. That's
right. This acquisition would position Microsoftas the third largest gaming company globally,
just behind Tencent and Sony. Andit's a it's quite a bold move which
showcases that Microsoft is committed to committingits resources as it believes that the gaming
(05:46):
industry has huge growth potential moving forward. Right, And this deal is expected
to close sometime in twenty twenty three, pending some you know, regulatory approval.
And just a few months ago,in July, Microsoft made another citing
announcement they will be establishing a newdivision called Microsoft Gaming to oversee all the
gaming businesses, including Activision Blizzard.Yeah, and just to reemphasize what I
(06:09):
said, the introduction of this MicrosoftGaming division demonstrates the firm's commitment to especially
consolidating their gaming ventures under one umbrella. And this strategic move, well,
it just essentially aims for drive innovation, enhance the gaming experience for players worldwide
through their Xbox Game Pass indeed parts, but it's also not forget. This
(06:31):
acquisition has sparked mixed reactions within thegaming community. While some gamers have expressed
concerns about potential anti competitive practice buyMicrosoft other seeds as an opportunity. You
know, you look at Microsoft,it's you know, three three show indoor
company compared to Sony, which is, you know, hundred billion. So
it's like you look at that,and you know, you fear that there
(06:55):
might be some you know, monopolistictender exactly, So there is Some people
have waste their concerns, and obviouslyregulatory people have also, this is why
it's been delayed this long. Butabsolutely though, and some important to acknowledge
these valid legal concerns that have beenraised by gamers and regulatory bodies. So
regulatory bodies in the United States,the European Union, the United Kingdom have
(07:17):
all expressed apprehension regarding the potential anticompetitive behavior that is stemming from this composition,
from this accreation storry. So justput some numbers out there. Right,
As you mentioned, Microsoft is thesecond largest company in the world.
It's market cap is currently two pointfive trillion dollars, almost three trillion dollars.
Sony, on the other hand,is a Japanese company whose market cap
(07:38):
is around hundred billion dollars, andActivisions market cap is around seventy billion dollars.
So Microsoft is essentially acquiring a companythat is similar sized to Sony to
compete with Sony. It's wild butum, you know, these concerns again
we just highlighted earlier, but theyreally revolve around Microsoft's market power and the
potential for them to limit competition byleveraging the control over Activision. You know,
(08:01):
regulators are specifically wary of any actionsthat could impede gamer's ability to enjoy
titles. You know, as agamer myself, having games exclusive to just
one platform, you know, ruinsthe experience, and that's something that these
regulators are looking out for and Sonyhas been lobbying so their main competitor.
(08:22):
Sony has voiced opposition to this acquisitionand their argument is essentially that this would
this deal, if granted, wouldgrant Microsoft an excessive amount of power,
making it very hard for Sony tocompete. And Sony has specifically raised concerns
about the possibility of Microsoft making Activisionblizzards popular games which has Call of Duty
(08:43):
exclusive to the Xbox console. Andthe reason why this game, Call of
Duty is very important if you're notfamiliar, is that Call of Duty since
it's launching two thousand and nine,has been the highest selling game on every
platform, and thus the sale ofCall of Duty on PlayStation actually accounts for
a major source of revenue for Sony, and if made exclusive to the Xbox
(09:07):
console, would almost eliminate Sony outof the competition. However, it's also
it's important to note that Microsoft hasnot made any official announcements regarding exclusivity of
games like Call of Duty or evenOverwatch. In fact, they recently signed
a ten year deal with Sony guaranteeingavailability of Call of Duty games on the
PlayStation consoles to at least thirty three. Furthermore, Microsoft has expressed their commitment
(09:33):
to supporting Overwatch on all platforms exactlythough. So while exclusivity does remain uncertain,
it's clear that Microsoft's intent with thisacquisition is not just exclusivity deals for
the games under Activisions umbrella. They'relooking to harness the synergies beaving their own
gaming expertise and Activisions vast portfolio ofgames to expand their gaming business and essentially
(09:58):
dominate that industry. All right,Um, this this move allows Microsoft to
strengthen this market position and bring fortheven greater innovation to gamers worldwide. The
impact of this acquisition on the gamingindustry as a whole cannot be overstated.
It marks a major turning point inMicrosoft's new division that they made, the
(10:20):
Microsoft Gaming Division, but also forgamers themselves. Um, it depends,
you know. It will now influencewhat consoles people buy. I'm you know,
when you look out to buy console, you buy console for the games
that are available on the console.Um, you look for you know,
any exclusive deals. So it willshake up the market for gamers and for
(10:41):
game producers too. Yeah, sojust take let's take a closer low gas
to why this deal has been goingon for so long and what state it
is currently sitting at. So theinitial challenges and delays faced was this acquisition
was primarily as we talked about,regulatory concerns causing delays, and regulators in
(11:03):
the US, EU and the UKall expressed concerns about potential antitrust issues arising
from Microsoft's expanded market power and resources. Right authorities were concerned that Microsoft might
leverage it control over activisions games tocreate barriers for gamers who wish to play
on competing consoles. They aim toensure fair competition and equal access for players
(11:26):
across all platforms. Yeah, andlet's not forget that they're still ongoing negotiations
with the regulators. So although thedeal has phased obstacles, it is likely
to receive approval with certain conditions imposed. And these conditions may include divestiture or
divestment or certain assets, or commitmentsto maintain availability of games on competing consoles.
(11:48):
That's correct, and while the acquisition'sfate is not yet sealed, it's
evident that this deal carries significant weightfor the gaming industry. Has alluded to
earlier, the outcome will shape thefuture the gaming In end, the competitive
landscape. But delving into the detailsof this monumental acquisition, Microsoft, the
Microsoft's acquisition of Activision encompasses their entireportfolio games, ranging from iconic franchises like
(12:15):
Call of Duty to titles like WorldWarcraft and Candy Crush, and they would
also acquire a bunch of intellectual propertysuch as their esports division and which is
responsible for running their prestigious Call ofDuty League and the Overwatch League. And
these acquisition creates exciting synergies for Microsoft. By leveraging blizzards gaming expertise, Microsoft
(12:37):
can elevate its own gaming businesses tonew heights. The combination of their strengths
has the potential to redefine the gamingindustry. Absolutely. Microsoft is essentially positioning
itself to compete with effectively other techgiants like alphabet or Google and Amazon who
are investing heavily in gaming. Aswe know, Google last year tried to
(12:58):
launch their own cloud gaming platform calledGoogle Stadium, and only a couple months
ago they actually announced they're shutting itdown due to a lack of adoption because
the Xbox and PlayStation were essentially justkilled it right, and the impact acquisition
goes far beyond Microsoft's own growth,it is a catalyst for innovation and advancement
in the gaming industry as a whole. Gamers can look forward to a more
(13:20):
diverse and exciting range of games andservices as a result of this union.
Yeah, and the deadline for finalizingthis transaction has now been pushed to October
eighteenth of this year, which provides, in my opinion, ample time to
address regulatory concerns. And this extensionfollows recent approvals in forty countries and the
(13:41):
recognition that the deal is actually favorablefor competition and competitors in the industry,
and the boards of directors of bothcompanies have authorized the transaction or the acquisition,
which demonstrate their confidence in resolving anyoutstanding issues yep, and the Microsoft's
Vice chair and president, Brad Smithis also emphasized that the extension allows enough
(14:03):
time to work through the financial thefinal regulatory matters. This move demonstrates the
commitment of both Microsoft and Activision tonavigate the complex relatory landscape and reach a
favorable outcome. Alongside this extension,both companies have agreed to a higher termination
fee and a new commercial arrangements.So this includes a termination fee of three
point five billion dollars if the dealdoesn't close by the by August, estimating
(14:28):
to four point five billion if theSeptember deadline also is not met without any
finalization. Yeah, and regulators inthe UK have been the main significant regulatory
bodies that have played a significant rolein timeline adjustments. The original blockage was
over cloud gaming concerns that was promptedbecause of Microsoft, you know, deciding
(14:50):
to acquire and this was appealed byMicrosoft while simultaneously working on a proposal to
sell its UK cloud gaming rights whichwould address the regulatory concerns and the best
place. Despite these challenges encounter alongthe way, Microsoft and Activision Blizzard are
are resolute in their pursuit of thismonumental which is not mended. They initially
(15:13):
put an offer for sixty eight billion, but I'm now agreed to a price
of seventy five billion dollars and tothe certified seven billion dollars mergion merger.
Both companies recognize the immense potential forgrowth and innovation that this merger brings to
the table. Microsoft CEO Satya Nadelafirmly believes that joining forces with Activision will
(15:33):
unlock new opportunities and propel the gamingindustry forward. They see this as a
means to expand Microsoft's presence in gamingand reaching an even broader audience. An
Activision is equally enthusiastic about the merger. They see Microsoft technology and resources as
invaluable assets that can enhance their gamingofferings and deliver even more immersive experiences to
their players. Sure, so,now I just want to take a brief
(15:56):
pause and talk about the customer perspective, perspective of the average individual who's looking
at this acquisition from the outside,right, and are the what are the
reasons why some people might actually wantthis acquisition to go through. So from
a consumer perspective, from what Iunderstand, the CEO of Activision, Blizzard
had terms of sexual assault lawsuits,he was named as a pedophile, et
(16:18):
cetera, et cetera, and hewas on the verge of getting kicked off
from the company, and this acquisitionby Microsoft will essentially remove him from his
role as a CEO. That isone of the reasons why people want this
acquisition to go through. Another reasonwhy people want this acquition to go through
is if you are an Xbox gamer. The Xbox game Pass will become a
way better value of money because youwill get new games added to the game
(16:40):
Pass at the same price. Andthe third reason, which I think a
lot of people are justifying this acquisitionis because Sony has done similar things in
the past. They have been abully to smaller companies, acquired their IP
and put it on you know,the PlayStation Online Pass or whatever it is.
I'm not really a gamer, soI don't know exact terms, but
in my opinion, all these pointsare invalid, and I'll tell you why.
(17:03):
Firstly, the first point I talkedabout how the CEO of Activision is
a po and a sexual assault andall that. Oh, yes, all
these comments are true, so I'mnot arguing against that. But the point
is that this acquisition will see himget a payout of approximately three hundred to
four hundred million dollars okay, becauseof all the equity that he owns in
the company. So sure, hewill leave the company, but this acquisition
(17:23):
is giving him essentially a lifetime payoutfor generations. Okay, A four hundred
million dollars payout is pretty comfortable.Yeah, I get that, buy I
disagree. I think I think it'sgood to remove people like that from your
company. Um people like that area representation of you know, what you
do and as a as a gamer, you know you you know, community
is a very big part of gaming. You want people that lead your community
(17:45):
to uphold values that you know thatyou believe in and have the right um,
you know, ethics and moral standards. So although he's getting a payout,
I think it's better for the communitylong term for the people that are
building these games to get people likethis out of the communion. He's a
leader and he shouldn't be in thisposition, if you know these allegations are
true. Yeah, But my pointhere in this argument is because activision prior
(18:10):
to this acquisition was allowed, thecompany was going on a downhill, and
the downhill was essentially speared by thenegative press around their CEO. So it
was only a matter of months untilthe boat of directors in my opinion,
would have kicked out the CEO anywaywithout the three hundred four hundred million dollars
payout. Okay, So this acquisitionessentially allows him to get kicked out of
the company regardless, but get apayout on top of that. Okay.
(18:33):
Because of that concern that concern isnot valid in my opinion, because he
would have been forced out of thecompany anyway. All right, so you're
not happy with the payout, butyou're happy with the leaving. Yeah of
course. Okay, yes, Iget that too, I guess. Yeah,
rewarding bad behavior is not good.Um, yeah, I'll concede.
I'm on the same people. Movingon to the second point that I made,
which was about how the Xbox GamePass will become a better value for
(18:53):
money. While that is true forthe short term that yes, Xbox Game
Pass will give you an access tomore games for a low price compared to
whatever Sony can give you, thiswill only last for a few years,
just as soon as the UK regulatorsproposed that the acculim can go through the
Xbox Game passes price when up byone dollar. Now, I know what
(19:15):
you will say that one dollar isnot a significant amount, you know,
it's negligible, whatever, whatever,But this will happen every year, one
dollar a year, and over time, once the ten year agreement of call
of duty exclusively runs out, itwill move exclusively to Xbox and then boom.
Then then the Xbox has a monopolyand they can bump up the price
to one hundred dollars. What areyou gonna do? Yeah, no,
(19:37):
I agree with the whole Yeah,monopoly, they can charge what they want.
I still feel like it it willbe it won't be an nessary better
value for money, but the gamepass will be superior definitely to the Sony's
game pass. Sony has a similarmodel, but the game pass will definitely
superior, better value for money.I'll agree there. Yeah, I think
(20:02):
I don't think it would be chargedfairly just because of because they later.
And lastly, one of the argumentsfor why people might think they should go
through is because Sony has done similarthings in the past. But just to
put this into scale, right,like, yes, Sony has done similar
things in the past, but sohas every company. Sony has a market
cap of one hundred billion dollars.Microsoft has a market cap of two point
five trillion dollars. Microsoft is quiteliterally twenty five times bigger than Sony.
(20:29):
So yes, Sony has done thingsin the past that were, you know,
unethical, but they have done itat a significantly smaller scale, whereas
Microsoft is essentially acquiring a company ofthe same size as Sony. Yeah,
I don't think in all cash,don't. I don't think it's about the
size. I think the practice it'sstandard in business, you know, Yeah,
(20:49):
it's common standards. So having thisas a reason as a reasoning to
why you're doing something not the bestlogic. But I understand. I'm I'm
not against Microsoft doing this. Ithink's fair game. If they passed you
know, all the anti competitive rules, and I think it's it's yeah,
(21:10):
all in good fairness. Yeah.So, like, while I personally think
the acquisition should not go through justbecause it would make the gaming industry less
competitive and give Microsoft an insane edgein the long run, which would also
negatively affect consumers like ten years downthe line, yea, if Microsoft is
able to do so, then allfair game, Yeah it is. I
think One more thing that I'd liketo point out that no one has mentioned
(21:32):
much is that the judge in theUK who was essentially, you know,
deciding if the acquisition should go through, the judge's son, just like a
couple of weeks during the whole trialwas going on, got a job at
Microsoft. Now, typical judicial ethicswould suggest that the judge should recuse him
or herself from the case, butthey didn't. And I don't know if
(21:56):
that had anything to do but theapproval, but one can assume, well
assume or moving on to some morefunny news that um has you know,
taking, I think social media bystore is a Taylor Swift's new tour eras
that's coming to Australium. Fans alsoknown the Swifties, are scrambling to secure
tickets. Your sparking discussions about theeconomic repercussions of this cultural phenomenon part Maybe
(22:22):
could you gives a little insight beforewe, you know, dive into this.
You know, you're explaining to methe little background behind this whole h
Taylor Swift, you know drama.Yeah, so before any Swifties attack me,
I've done about I've done. I'mnot a Swift tie, so I
don't know the exact details, butI'll try my best to summarize what has
happened and what this era store hasspawned from. So from what I understand,
(22:47):
when Taylor Swift was younger, theessential controller and owner of her IP
was her dad, and so herdad would control the songs, who they
were sold to, what record labelshe was signing with, how much money
she would get paid out, etc. Etc. And so a couple of
years ago, Taylorshift's dad, whohad access and ownership of the IP,
(23:07):
sold the IP to a music produceror a music label who was owned by
the guy named Scooter Braun. AndScooter Braun purchased three albums of Taylor Swift
for approximately three hundred million US dollars, and his plan was that he would
essentially own these songs and continue earningroyalties which would easily surpass surpass three hundred
(23:30):
million dollars. And when Taylor Swiftcame back onto the scene to record some
more songs, she was not happywith this as she did not have any
She didn't agree to that deal.She didn't even know what the deal happened.
She found out about this three hundredmillion dollar deal on the internet,
just like the rest of us,and she was angry. But instead of
just being angry and sitting, youknow, sitting around her room being depressed,
she looked at the contract that wassigned and what she realized was that
(23:55):
there is no clause in the contractthat prevents her from rerecording this same songs
that she recorded that were sold toScudo Braun. And so what this era's
tour that I understand has been goingon is about her first album that she
has rerecorded to essentially tell scootle BraunTop because Scooter Braun did that entire thing
(24:19):
unethically and she wanted all the royaltiesfrom her songs. So she has essentially
rerecorded all her original songs and rereleasedthem in a new album called Eras,
and she is now going around theUnited States for the time being and planning
to come to Australia to present thesesongs. And just from statistics so far,
what I understand is the new rerecordedsongs are already three times more streamed
(24:42):
than the original songs that were purchased. And this is only one album and
there are two other albums that werepurchased. So my assumption is she's going
to rerecord those two albums and goon another to the same thing. Wow.
That's very interesting, but it's alsointeresting to see how this tour impacts
not only the fans, but alsovarious sectors the economy. Research suggests that
Tailswift's nightly ticket sales alone range fromeleven to twelve million dollars, and her
(25:07):
US tours on track to become thefirst to gross a gross one billion dollars.
But it's not just tail Swift herselfwho benefits from these concerts. The
tour has the potential to boost localeconomies by an estimated four point six billion
dollars. Attendee splurge on accommodation,hospitality, clothing, and travel, creating
a ripple effect of economic activity.This surge and spending can lead to an
(25:32):
inflationary impulse AMPTI term the t Swiftlift. We've seen evidence of this phenomenon
when Tailswift performed in Nashville. Revenueper hotel room in the city during her
visit was doubled that of the sameperiod of the periods year. And it's
not just Taylor Swift that this inflationaryimpact is unique to. Beyonce had a
(25:55):
tour in Sweden that also contributed toa higher than expected inflation that was I'm
really driven by increased prices in hotelsand restaurant sectors, specifically the Swedish meatballs
as they were very highly priced,and the essentially the Swedish government Essentially he
released a statement that said that Beyoncehad actually caused or had contributed to the
(26:17):
inflation, but and no other newsarticles were published about it, and a
few weeks later one of the newsjournals published that while it wasn't Beyonce entirely,
that Jove the inflation because inflation isstill high weeks after she has left.
So it feels like these countries thatis looking for a reason to blame
someone for the inflation. But yeah. The Office for National Statistics and Britain
(26:40):
also noted that there's a thirty twoyear high in inflation relating to admission fees
for live music events. As talesst Australian tour approaches, fans are already
making travel and accommodation arrangements even beforesecuring tickets. Anecdotal evidence suggests that prices
are already increasing. For example,the cost of a room, maritime suits
(27:00):
and Sydney's CBD on the twenty fourthof February, the middle Saturday of swifts
three nights stand is significantly high comparedto previous Saturday nights. However, as
we have seen and as we understand, despite these price increases that are already
evident, the RBA probably does notneed to be concerned about inflationary pressures being
(27:22):
caused by Tailor Swift's tour While fearsof inflation do persist, the temporary nature
of the spending boost associated with thetour would be mitigated because it is a
very short term boost all right,and the spending surve generated by the Tailor
Swift's concert is likely to be concentratedover a few days. While it might
show up in monthly inflation date data, it is unlikely to have a significant
(27:45):
effect on quarterly data. The RBAwill likely view it as a temporary phenomenon
and look through it. On topof that, it's essential to consider the
broader economic landscape. By the timeTaylor Swift's tour arrives, the economy might
already be grappling with several interest raterises, which could wait on household spending.
Right the timing of the tour coonsides with potential interest rate hikes,
(28:08):
and this might moderate the overall impactof any inflationary pressures resulting from the concerts.
Additionally, the boost in related employment, accommodation demand, and transferred fares
can provide a welcome respite for theeconomy exactly, And while there maybe temporary
spikes and inflation, the overall impact, in our opinion, is likely to
(28:30):
be modest and quite transitory in nature. Ultimately, the impact of Tailor Swift's
tour on inflation is likely to betemporary, A temporary blip rather than a
sustained increase. Is crucial to viewit in the larger economic picture and recognize
the broader factors influencing inflationary pressures.And with that, we would like to
conclude the episode. Thank you forjoining us in this in depth discussion on
(28:53):
earnings, Microsoft's accilition of Activision andTaylor Swift. Thank you for listening and
tuning in. We're right to staytuned for more episodes in the future.
Until next time, Peace,
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