Market scorecard
US stocks climbed again yesterday, following an inflation report that matched expectations, reinforcing the view that the Fed will cut rates in September. The S&P 500 continued its upward trend, enjoying its fifth consecutive day of gains, the longest winning streak in over a month. Financial, energy, and tech sectors drove the rally.
In company news, privately-owned Mars raised $36 billion to fund its purchase of Kellanova (NYSE:K), the Pringles-maker. Kellanova was up 7.7% on the news. Elsewhere, Victoria's Secret (NYSE:VSCO) jumped 16% after the undergarment retailer hired Hillary Super as its next CEO.
In summary, the JSE All-share closed up 0.55%, the S&P 500 rose 0.38%, and the Nasdaq was 0.03% higher. We'll take that, yes sir.
One thing, from Paul
In a judgement delivered two weeks ago, a federal judge found that Google (NASDAQ:GOOGL) has a monopoly over the online search market. Now, news reports are surfacing that the US Department of Justice (DoJ) may be seeking to "split up" the company, to remedy the situation.
Investors in Google may be wondering what a possible "split up" means for them. Here's my short answer: it does not mean much because it is not likely to happen, and even if it did, we will be fine. Hang on to your Google shares.
Let me explain in a little more detail. Google dominates web search, because it's the best way to find things on the internet, by far. They pay a lot of money to Apple (NASDAQ:AAPL) to be the default search engine on iPhones. They also pay other smartphone makers to do that, and they hard code the feature into Android phones. They use their highly sophisticated Google Ads platform to sell advertisers the right to feature prominently when people search on words like "car insurance" and "flights to Vegas", etcetera.
Why am I being so sanguine about these threats? Firstly, Google will appeal the finding by the federal judge. Secondly, the leadership of the DoJ may change after the next US election. So this whole thing may lose momentum and go away by itself.
If it does not go away, the DoJ is most likely to seek a ban on deals like the big one with Apple. To be honest, that will save Google over $20 billion a year, and most iPhone owners will still use Google search. I don't know about you, but the actual Google Search app is on my iPhone home page, and it's what I use for all searches.
If the DoJ gets aggressive and pushes ahead with a breakup plan, the most likely units for divestment are the Android operating system and Google's web browser Chrome. Honestly, who cares? Let them do that. Google can spin them off or sell them to someone else and pocket the proceeds. Current Google shareholders may even be better off.
The least likely DoJ action would be trying to force a sale of AdWords. It's unlikely because it is impossible. It would be like obliging car companies to sell vehicles without engines. It's much more likely that they will require Google Ads to be served seamlessly on other search engines.
So, in summary, let's assume that nothing happens, and if something does happen, trust that the outcome would be neutral for shareholders, not bad.
Byron's beats
I enjoyed this snippet of advice via Morgan Housel.
I once asked a successful author how to market a book. He waved me off and said, "If the book is good you don't need to market it. If the book is bad, no amount of marketing will help."
In other words, the best marketing is a good product. Here at Vestact we don't do any marketing. We let our returns and client service levels do the talking. Our new clients come via word of mouth, or warm referrals from existing customers.
There is one promotional effort that we are committed to: this newsletter is a very powerful marketing tool. Potential clients see us every day in their inbox and get to know how we think and operate. If that narrative resonates with their own, they usually get in touch to open an account. Not only does it bring in clients, but it also brings in the right kind of clients with a similar outlook on investments and the world.
Michael's musings
Disney (NYSE:DIS) has a vast treasure trove of characters and stories that don't get old. Movies I watched as a kid are just as entertaining to my children today. Buffet once remarked, "it's like having an oil well where all the oil seeps back in." Disney is expanding to take advantage of their growing content library and increasing fan base. Last week the company announced a $60 billion (R1 trillion) upgrade plan to its theme parks and cruise ships.
The upgrade list includes Walt Disney World in Florida getting a whole new land, devoted to classic Disney villains. Disney is also building four new cruise ships, on top of four others it had previously announced, almost trebling the size of its current fleet by 2031.
Given that about 50 million people visit the Walt Disney World complex a year, the company needs to spend big to increase the capacity for future fans. Interestingly, in 2022, Disney reported that its Florida complex of parks generated $12 billion in labour income, with the total economic impact for the state totaling $40 billion. Wow, that is a huge benefit to the surrounding area. By comparison, the greater Kruger National Park is estimated to pay around R1.2 billion in wages, and create R6.6 billion in total economic impact.
Bright's banter
Duolingo, the language learning app, reported its fifth consecutive profitable quarter. The company posted total bookings of around $190 million and a net income exceeding $24 million, a sixfold year-on-year increase.
Duolingo also reached 100 million monthly active users (MAUs), boosting its shares by over 10%. Duolingo's success is largely attributed to its highly engaging, gamified user experience, which keeps users coming back daily. About 33% of its MAUs use the app daily, a notable increase from five years ago.
This engagement has helped Duolingo effectively convert free users to paying subscribers, doubling the percentage of paying users in the same period. The company offers premium services like Super Duolingo and the AI-enhanced Duolingo Max, with the latter utilising GPT-4 for personalised language lessons.
Despite its playful and sometimes "evil" owl persona, Duolingo's persistent notifications and quirky marketing, particularly on TikTok, have cemented its place in the language-learning market. I have been using the app to learn Spanish for the past 10 years.
Que tenga un buen dia mi amigos!
Signing off
Asian markets are edging higher this morning with the MSCI Asia-Pacific index extending its winning streak. Equity benchmarks saw gains in Hong Kong, Japan, and mainland China, but fell in Taiwan. Indian markets are shut for Independence Day and Parsi New Year celebrations, while South Korea observes Liberation Day. Lastly, Japan's economy grew faster than forecasts in the second quarter, this is the boost in sentiment that Asian markets needed.
In local company news, the Competition Commission has given a thumbs up for the R6.5 billion acquisition of Assupol by Sanlam (JO:SLMJ). That was a fast approval under the new commission management team, well done.
US equity futures are higher in early pre-market trade. The Rand is at around R18.06 to the US Dollar.
Today we'll see earnings reports from Cisco (NASDAQ:CSCO) and Walmart (NYSE:WMT).
It's a sunny morning in Johannesburg, and it feels like spring is just around the corner. Be well.