Trend Analysis
Capital Markets
The tepid U.S. investment climate has caused a backlog of more than 300 companies waiting to IPO. Companies that have gone public recently have tended to be smaller listings under $100 million. John Tuttle, the NYSE’s vice chairman, is expecting a post-Labor Day resurgence in interest. Investors are focused on value versus growth and the ability to demonstrate profitability - for the time being.
China stock performance has caught the eye of Goldman Sachs, Bank of America, Jefferies Financial Group, Amundi, and Citi—all of which have brightened formerly dim outlooks for Chinese equities. The MSCI China Index, the broadest measure of China stocks on mainland and offshore markets, is up more than 20% since March 15th.
With so much upside potential it’s no wonder that China-based listings are breaking records, while initial-public-offerings elsewhere dry up in the heat of recession fears. So far Shanghai and Shenzhen markets have remained relatively sheltered from the global downturn.
China’s Didi de-listed from the NYSE after pressure mounted from a China crackdown. That isn’t stopping other firms from chasing listings elsewhere, including through Special Purpose Acquisition Companies (SPAC’s). These firms have no operations, but have listings on exchanges. Active companies merge with them to get a fast on-ramp to going public without an IPO.
Even though SPAC listing losses were more than doubled the S&P 500′s 2022 decline, companies are still choosing this route including in Singapore and the U.S. markets. Blockchain-based crypto payments provider Roxie is merging with Goldenstone Acquisition Ltd in a deal valued at roughly $3.6 billion. With so much money flowing via the SPAC pipeline, participants are concerned about potential regulation. Proposals from the Securities and Exchange Commission and Democratic Sen. Elizabeth Warren of Massachusetts were on the minds of participants at the recent 2022 SPAC Conference held in Rye, NY. And the tech bubble that seemingly burst this ear, well, money keeps pouring in as companies continue to build.
Streaming and Media
What’s old is new as streaming giant Netflix delayed the two episode “Stranger Things” finale by five weeks rather than dropping the entire season all at once. It’s a change in tactic for a company that prided itself on making the weekend binge “a thing” that became a weeknight ritual for many during those dark winter Covid nights. With 200 million subscribers worldwide, the ailing streaming giant is adapting to what its rivals like Disney+, AppleTV, and Amazon have been doing from the start—the weekly episode drop that teases viewers for weeks on end (and sustains the monthly fee model). It’s not all that different from the advent of the medium itself with 1950’s TV shows airing at a precise day and time with a cliffhanger kicker to keep viewers tuning in week after week. That and the “only in theaters” movie releases that are challenging the streaming world as people are eager to get out of their houses and watch a film on an actual big screen again.
Viewers are also overwhelmed with choices these days. CNN+’s early demise barely a month into their launch shows there’s a limit to what execs think will sell. Still, for cord-cutters, the cost of streaming services are beginning to add up. The goal was to beat the cable companies at their own game. If there are too many choices in the end, some kind of market consolidation is likely (note Discovery and WarnerMedia’s $34 billion merger). And the best positioned to weather any storm are the tech giants like Apple and Amazon, with deep pockets and enough time to wear down the opposition.
In the end, profits will trump sheer volume of content. Those profits may be coming from new revenue streams including advertising. Netflix also announced a crackdown on password sharing though underground marketplaces sell them at rock-bottom prices. Non-fungible tokens (NFTs) are also in the mix as Tom Brady’s digital collectibles firm Autograph teams up with ESPN to sell NFTs based on the 10-part ESPN docuseries “Man in the Arena.” Whether the general crypto meltdown affects interest in this burgeoning segment is still TBD.
Technology
Blockchain is, however, making significant headway in the healthcare sector. Along with cryptocurrency, virtual reality, and artificial intelligence, U.S. healthcare spending is expected to double by 2040 to $8.3 trillion, up from $4 trillion in 2020, as the industry adopts new and emerging health technologies.
Some of that spending will inevitably revolve around cloud resources. Firms had been offloading their data storage, and increasingly their software needs, to external providers which offered zero downtime and back-up services. That trend may be shifting as Walmart made news with its ability to switch seamlessly between cloud providers and its own servers. That could save millions of dollars and offer a road map to other companies that want to reduce their dependence on big tech.
Securing all of that data, wherever it resides, also depends on a good offense. With that in mind, IBM is acquiring Randori, a Boston-based security startup that combines attack surface management (ASM) with continuous automated red teaming (CART) to help organizations bolster their cyber defenses.
Some firms, and governments, have also become increasingly concerned about where user data is being stored and who may have access to it. The popular short-form video app, TikTok, owned by China-based ByteDance Ltd, was in the spotlight after news surfaced that its user’s data could be accessed in China. They have now announced that U.S. user data is routed through the cloud infrastructure of its partner Oracle Corp. though the firm still uses its own U.S. and Singapore data centers as backup. They expect to delete U.S. user data from its own data centers and migrate fully to Oracle servers.
Gaming
TikTok’s data storage is about to surge with the launch of its augmented reality development platform Effect House, where creators can build AR effects for use in TikTok’s video app. Meta is also expanding its AR offerings, though users may not be so happy. While its content creators will be able to monetize their creations in Horizon Worlds, Meta may take up to nearly 50 percent of the revenue. That’s some real, not virtual, money.
ByteDance Ltd. has some analog aspirations of its own, but its plans for an initial public offering have stalled. They finally filled a vacancy in their executive management team with the appointment of Julie Gao, a senior China-focused lawyer as their new chief financial officer. The position had been vacant since last November.
With tech under scrutiny, M&A is under review as Microsoft (ticker: MSFT) strives to advance its $69 billion all-cash deal with Activision Blizzard (ATVI). It looks like it might happen, according to Microsoft, with projections to close in the fiscal year ending in June 2023. If this does come to fruition, it will set MFST up for success and likely have a big impact on the gaming and broader M&A ecosystem.
