Oracle’s Ellison cancels plan to sell up to 50 mln shares
Market Scorecard
The US market dropped yesterday as the short term economic realities from Covid became real. New York City has shut all schools again due to rising Covid cases. The market now needs to balance the long term optimism of having a vaccine with the short term problem of a restrained economy.
This week we have had trading updates from Shoprite and Spar. The work from home trend has been a tailwind for both companies, as they had solid South African sales, and even better if you remove the negative impact from their shut bottle stores. The difference between the two came in their other operations. For Shoprite, the rest of Africa division struggled as a whole - not being able to cross borders with produce and volatile currencies hampered sales. Spar on the other hand is predominantly focussed in Europe and did very well. These things go in cycles, not so long ago Europe was considered ex-growth and all the retailers were scrambling to expand into neighbouring African countries.
Yesterday the JSE All-share closed up 0.47%, the S&P 500 closed down 1.16%, and the Nasdaq closed down 0.82%.
One Thing, From Paul
What would you do if your portfolio fell by 30%? Or what about 40%? Most people say that they would use the opportunity to rebalance their account and/or buy more stocks.
During market plunges, including the brief Covid-19 collapse in March, my colleagues and I at Vestact spent quite a bit of time talking to clients who were sure they would buy more stocks, but when the fall came, they actually wanted to sell everything. We had to gently pull them away from the ledge. Buying more stocks was completely off the table!
The clients who did step in to buy were mostly not following the markets very closely, and were just socking away their savings, as one should. Ok, to be fair, there were a few brave souls who knew that stocks were on sale and stepped up to buy. They embraced the pain and followed through. Well done!
The best course of action is always to keep calm and carry on. Buy shares in quality companies and hold them for the long run. Crises come and go. Wait them out.
Byron's Beats
There has been a lot of scrutiny about the 30% commission Apple (NASDAQ:AAPL) takes on the app store. Not just from regulators but from businesses too. Apple have finally compromised by offering small businesses a 50% discount. If an app has less than $1m in annual revenue, then they will only be charged 15% commission. This will start on the 1st of January 2021 calculated on 2020 revenues.
This is a great move for small businesses that are often cash strapped. It will also give these businesses a better chance of succeeding which in the long run will benefit Apple. A report I read suggests that 92% of app store revenues comes from large apps. This means the financial impact on Apple will be negligible.
As an outsider this may seem like an obvious move and that Apple should be even more generous. But don't forget that Apple invests a huge amount of money hosting apps and improving the platform. The issue of fees will be an ongoing negotiation between developers and Apple.
Bright's Banter
Spotify (NYSE:SPOT) announced that it was buying Megaphone, one of the world's leading podcast advertising and publishing platforms, for a cool sum of $235 million. This is the industry's second largest deal in 2020 after SiriusXM acquired Stitcher for $325 million. Megaphone was founded by Andy Bowers in 2015 and has a client base that includes Vox Media, Slate, Wall Street Journal, and ESPN just to name a few.
The Megaphone deal makes a lot of sense considering that Spotify's biggest growth is going to come from streaming audio that isn't music. People subscribe to Spotify for the music algorithm and stay for Joe Rogan and Michelle Obama's podcasts. Spotify's biggest competitors include Apple, Audible, Scribd, and sleep.
The more ears Spotify lures, the more advertisers and creators will join and use the Spotify medium and it is through these network effects that we see more potential for value creation. Spotify's streaming ad insertion will now be available to third-party Megaphone podcast publishers for the first time ever. Spotify has about 1.9 million unique podcasts and over 60 million music tracks.
Spotify recently introduced ad insertion technology on its platform, which basically enables a wider range of brand messages to be woven into relevant podcasts, rather than receiving blanket ads on all podcasts. Spotify currently has over 320 million users of which only 144 million are paid subscribers meaning the rest are ripe for ad monetisation!
Signing Off
It is interest rate day locally. Will the SARB give us an early Christmas present and drop interest rates? The market is leaning towards 'not today', but there is still a chance. With yesterdays weak retail sales figure and CPI only sitting at 3%, there is room for more cutting. We will know shortly after 15:00. This morning Japan is red, Mainland China is green and Hong Kong is red - Asian markets are mixed. The Rand gave up ground overnight, it's now trading at $/R 15.50.
