Trend Analysis
Capital Markets
With all of the news about equity markets these past few months you’d think no executive in their right mind would go public in this environment. There is the Fed’s voracious appetite for tightening, a crimp on corporate earnings, weakening consumer demand, and a strengthening dollar. All of that is ricocheting around the world affecting markets in Asia and Europe. To top it off Germany is facing a severe energy crunch as Russia tightens the taps on gas just as winter descends. And its exports to China are hitting rough times as Beijing struggles with its own internal economic problems from Covid-zero policies to energy shortages and drought.
The truth about conventional wisdom is that it's often not the whole picture. Capital markets are getting a new boost as Porsche rocketed off the starting line to a $75 billion valuation in their debut Frankfurt listing. Nasdaq is also expecting Chinese listings to start picking up speed over the next few months as U.S. audit concerns dissipate in what appears to be agreement with Chinese authorities over access to corporate records. And Instacart is going ahead with its IPO plans, but is eschewing the traditional big-money raise. Instead, the company is banking on the sale of employees’ shares to raise capital at launch.
Even on the acquisitions front, companies looking to sell are finding some stellar deals. Figma, a startup co-founded by Ivy-league drop-out Dylan Field, who made wire diagramming for app development de rigeur, sold to Adobe for an eye-watering $20 billion.
Technology and Innovation
Not every acquisition yields ground-breaking innovation, however. When there is a lot of cheap money sloshing around, as it has been during the historic Fed loosening over the past few years, many firms try to buy their way to future growth. Bankers and external advisors may be keen to broker M&A deals, fueled in part by fat fees, but neglecting to build an internal capacity to innovate has costs. It may be tougher to re-tool corporate culture and merge bottom-up and top-down strategies to fuel innovative solutions, but they pay off when done right, according to a recent Harvard Business Review article on the “Perils of Innovation by Acquisition”.
Still, it’s no guarantee of success as Google found out with Stadia, its three-year-old cloud-based gaming service. Despite some technological prowess, the initiative failed to gain traction and was shut down. Corporate culture, it turns out, is proving to be an important requirement for continued success. Google CEO Sundar Pichai spent much of a recent all-hands meeting addressing employee concerns about company cost-cutting measures. Pichai, who expressed some annoyance during the meeting, said "I remember when Google was small and scrappy," and added that, "We shouldn’t always equate fun with money."
Google's finance head told employees to temper their expectations for holiday parties.
Media
The entertainment sector is also adapting to the vicissitudes of fickle viewers in their attempt to innovate. Broadcast networks are launching fewer new shows this fall as they become more of a testing ground for content, like baseball farm teams. The ones that perform well can be promoted to the big leagues — streaming services. Rather than being judged on traditional metrics, the networks want to be evaluated with this new role in mind.
That could be a challenge to advertising revenue on the mainstream channels. A shift is already underway for streaming services, which are also on the hunt for profitable content. That’s more likely to be ad-supported and “reality” TV-based in the genre of Judge Judy rather than blockbuster and budget-busting mega-projects like Game of Thrones. The competition is becoming intense, as former Disney CEO Bob Iger noted at Vox Media’s Code Conference. Not all of them are going to make it, he said, with Netflix, Apple TV+, Amazon, and Disney+ the most likely to survive. Iger expects HBO Max and Discovery+ to face tougher times.
HBO Max is already cutting back. Originally envisioned at launch in 2020 as the home of everything Warner Bros., DC, HBO, and kids shows, the service is cutting costs by jettisoning series and films as it shifts strategy in the lead up to next summer’s merge with Discovery+.
Streaming services run by big tech parents are also betting big on live sports. Amazon Prime picked up the NFL’s Thursday Night Football coverage and Apple TV+ has MLB games. Some are also developing sports-oriented documentary series putting viewers into the world of professional athletes and teams during their biggest moments including Netflix’s “Drive to Survive” and Amazon’s “All or Nothing”.
So even though the markets are reeling from each new economic data point, from unemployment figures to headline inflation, the real economy continues to chug along. Some firms are announcing layoffs and tighter budgets, while others continue to thrive and invest in the long game where bigger profits lay.