This year has gotten off to a strong start in the United States economically, with inflation somewhat tamed and strong employment numbers. Uncertainty persists, however, over the 2024 presidential election and what impact that might have on overall business growth.
GenAI continues to be the latest tech that companies across industries are trying to understand and implement. It's effects on productivity and new forms of entertainment are only beginning to be felt.
The U.S. and Asia IPO markets have seen some activity lately, but all eyes are on potential major listings from retailer Shein and social media giant Reddit to warm up the market.
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GenAI
Human-level intelligence is the gold standard for generative AI developers hoping to create a technology so “smart” that people will adopt it without giving second thought. Who wouldn’t want a virtual assistant that doesn’t answer questions with “I’m sorry I don’t understand your question” or “This is what I found on the web for that.”
The tech still isn’t there, yet, although Meta’s Mark Zuckerberg thinks they’ve got the upper hand. On a recent earnings call he said that publicly shared information is greater than what Google, Microsoft and OpenAI can access through web-crawled data from their search engines. To utilize the tens to hundreds of billions of images and videos at Meta’s disposal, however, could cost more than $30 billion a year.
Questions remain regarding copyrights and other intellectual property concerns for the trove of data used in training GenAI systems. Many companies restrict or outright ban its use. That hasn’t prevented some from using private, corporate information with those tools, according to a recent survey. That will further aggravate concerns over who owns what as “intelligent” systems start creating on their own.
Mass adoption may ultimately come from smartphones. Super Bowl ads gave a glimpse of what that might mean with identifying faces in pictures or being able to buy an item by simply tapping part of an image. Google and Samsung are leading the innovation with Apple expected to jump in quickly. UBS analysts, in a January report, said they expect GenAI-enabled smartphones to grow from 4% of the market in 2023 to 46% in 2027 or 583 million units.
Media and Entertainment
Streaming content used to be about the latest bingeable series or new movie release. That’s about to change as live sports content has entered the party. Amazon made headlines when it started offering football and soccer matches. Now Netflix has announced a $5 billion deal for World Wrestling Entertainment’s popular weekly Raw program. ESPN, Fox, and Warner Bros. Discovery also joined forces to launch a joint streaming platform tailored for sports fans.
And about those streaming channels, the substantial lead that ad-free networks had over traditional media is rapidly declining.
Amazon is now charging Prime members to skip ads that were recently introduced. That’s on top of the rapidly increasing price for the basic Amazon prime services that includes free delivery. Some long-time subscribers are opting to cancel the service altogether.
The e-commerce giant is still a major media player, however. Movies that would ordinarily premiere in theaters are now being viewed online first. For some directors, like Doug Liman of “Bourne Identity” fame, his latest film “Road House” is being sent straight to homes, a development he says bodes ill for Hollywood.
Netflix, on the other hand, has stuck to its core model and it shows in their churn rate, the lowest in the industry. Subscribers are sticking around according to recent statistics. STARZ subscribers are not. Netflix is likely to gain even as media company consolidation continues, according to Loop Capital’s Alan Gould, who is raising his price target for the stock.
Capital Markets
Asian IPOs
Despite the news coming out of China these days about lackluster economic growth and plummeting stock prices, Hong Kong’s IPO market looks remarkably robust. The number of filings in January rose over 80% from December, 2023 as mainland companies line up to raise funds through public listings (IPOs). They range across industry sectors from consumer goods and pharmaceuticals to internet new economy and new energy. Regulatory changes have made listings easier for Chinese firms, including for those seeking oversea bourses like NASDAQ.
U.S. IPOs
New York Stock Exchange President Lynn Martin expects more IPOs this year, despite market volatility. Ernst and Young’s George Chan, global IPO leader, thinks rate cut forecasts means a stronger 2024 IPO market as well. Investors will have a new tool at their disposal to gauge the strength of public listings with NASDAQ’s IPO Pulse Index which includes economic indicators, valuations, and investor sentiment, among other variables.
If early signs of a potential $5 billion valuation for social media platform Reddit’s listing is any gauge, 2024 looks like it will be off to a good start. Online retailer, Shein, remains one of the most anticipated U.S. listings of a Chinese company this year. Peter Pernot-Day, head of strategic communications for the U.S. and U.K., told CNBC that the company is not seeking to be an Amazon clone. Instead, he said the firm is focused on being an on-demand, fast fashion company.
Amer Sports, Inc. (AS), owner of Wilson tennis gear, Arc’teryx outdoor apparel, and Salomon sporting goods listed at the beginning of February. Despite being heavily reliant on China revenue, the stock rose on its first day of trading and by mid-month remains ahead of its opening day.
Real Estate
U.S. housing troubles continue to mount even as new inventory begins to enter the market and mortgage rates have softened, if only slightly. According to Harvard University’s Joint Center for Housing Studies, over 22 million of the country’s renters are cost burdened, paying more than 30% of their monthly income in rent. Half of those are shelling out over 50%, a level considered to be severe.
Tech companies are becoming real estate developers, in part to ensure employees have access to affordable housing. Several new developments by the likes of Google and Meta are coming to market replete with entire towns including cafes and public spaces. Some are available to the general public.
The warehouse market continues to show signs of stress as higher interest rates and lower demand continue to dampen demand.
General Business
The post-Covid work culture debates are still being fought in boardrooms and offices across the country. More firms appear to be requiring at least some at-office work, if not entire five days a week in person. Workers have been avoiding those demands after years of work-from-home flexibility, and many have chosen to find other employers if forced back to the office.
IBM has taken a hard-line stance for their managers – forget about remote work and move closer to the office for a mandated three days a week in person. Otherwise, they can leave. That isn’t going over well, but as offices close, some employees may have no choice but to comply.
And Gen Z workers faced with rising layoffs have taken to recording themselves as they’re kicked out the door. These videos of HR meetings that result in their imminent departure have become popular on Tik Tok.
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Until next month,
- Rachel