After Hours Summary: Quiet after hours; DIDI +1.4% ticks higher on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: DIDI +1.4%
Companies trading higher in after hours in reaction to news: None
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: None
Companies trading lower in after hours in reaction to news: AVCT -8.4% (stock offering), COLB -4.4% (files mixed securities shelf offering), AA -0.2% (to curtail aluminum smelter in San Ciprián for two years)
The Metaverse Isn’t Quite Ready for You, but Your Investment Is Welcome
It could pay off, much like the purchase of land in Manhattan 250 years ago
In a 24-hour experiment with a virtual reality headset, Wall Street Journal personal tech columnist Joanna Stern described the metaverse last month as fractured, freaky, sometimes frightening, but also kind of fun. All in a (virtual) day’s work, she traveled, exercised and played games. As a “legless torso that glides as a ghost,” she even met with her editor. In real life, she nursed a headache.
For the consumer, the metaverse doesn’t seem ready for prime time. But given its fabled promise, maybe it is these nascent shortcomings that make this piece of the so-called “Web3” especially attractive for investors to dive into right now.
Cryptocurrency seems to be attracting everyone from the tech elite to musicians as a way to dip one’s toe in the virtual water. Whether or not cryptocurrencies eventually replace “fiat” ones like the U.S. dollar, as enthusiasts predict, the blockchain technology they are built on will no doubt rule in the metaverse.
Blockchains are essentially public, permanent digital ledgers on which cryptocurrency transactions—among other things—can operate. They enable decentralized, secure and fast transactions and have no physical form—perfect for a virtual realm uniting different people holding different currencies all across the physical world. Cryptocurrency may still seem, well, cryptic to you, but it is a good analogy for investing in the metaverse itself: You don’t necessarily have to be sure of its destination to bet it is likely to take off.
Unlike fully baked industries, which boast years of user and sales metrics, even the most informed bet on the metaverse right now would be something of a leap of faith. Perhaps real estate is a good analogy: The best investments are often in the neighborhood you believe will become something in 10 years, not the neighborhood that is already something today.
Naturally, investment firms are already buying up real estate in the metaverse. Publicly traded Tokens.com not only invests in crypto assets linked to nonfungible tokens, but it is also buying up virtual metaverse land. In a recent Wall Street Journal report, Chief Executive Officer Andrew Kiguel likened buying metaverse real estate today to buying land in Manhattan 250 years ago.
Videogame makers already create multiplayer worlds that are akin to miniature mateverses. They are now selling virtual clothing, weapons and other gear in the form of NFTs. The hope is that people will be able to trade and resell them, and use them across games and on next-gen social media. This month, the Journal reported Zynga and Ubisoft Entertainment are already experimenting with this strategy, while Electronic Arts, Playtika and others are also eyeing the use of NFTs to engage players in the future.
Formerly Facebook, Meta Platforms is betting the next generation of social media is the metaverse. The company offers a virtual reality space for business meetings now in beta (something Microsoft will also soon offer with Mesh). Meta is already big into VR headsets, like the one the Journal’s Ms. Stern used for her experiment, and it is now buying into VR game companies.
But its social media competitor Snap, which has long called itself a camera company and eschews the term metaverse, is challenging Meta in the virtual world, too. It has offered augmented reality features Lenses and Spectacles for years now. And back in 2016, it acquired the maker of Bitmoji, a personalized cartoon avatar one can create. Today, the company says 200 million people are engaging with its AR technology every day to do things like try on clothing, learn about space, history and art, and even take care of digital pets.
In other words, you may already be invested in a future metaverse company without even knowing it. Computer systems company Nvidia NVDA -1.46% already has the Omniverse. Google parent Alphabet is focused on developing artificial intelligence and Apple is already knee-deep in wearables. Even online dating platforms are starting to talk about more virtual applications. Bumble has said it is actively exploring the role of its friendship feature BFF in the metaverse, noting not just a social experience but virtual goods that users could acquire via blockchain. Match Group’s Tinder is testing an in-app currency daters can use to pay for premium features and receive as gifts. In its third-quarter shareholder letter, Match also talked about a test by recently acquired Hyperconnect of a live virtual world called “Single Town,” where singles can engage with others as avatars.
For companies not yet in the metaverse, it is easy to see where they would find value. “Teleport” to a private bubble, as Mark Zuckerberg recently described the experience, and one day you could find online travel agents selling you trips to remote, real-life locales. Owners of virtual homes in the metaverse might rent them out on platforms like Airbnb. Whatever your feelings on automated home flippers, the algorithmic assessment of property values would be well-suited to virtual properties. Consider the benefits to unit economics: In the metaverse, even the renovations would be digitized.
Snap said it initially started working on silly AR lenses like puppy faces in part to lower the barriers to self expression. Now it says its users are playing with its AR technology on average more than six billion times a day. Maybe the same will play out in the metaverse for shy consumers in the dating world, or for companies who want to try out a new concept but can’t afford to take the risk of spending big bucks on physical storefronts, supplies and labor.
If the metaverse really is to be the next generation of the Internet, then pretty much every tech company will want to find a way to adapt to it, or else risk fading in the real world. That means that even if the concept of using the metaverse still seems remote to you, your investment in it could be inevitable.
Market Trading Hours Summary: Yields tick up and stocks are mixed in thin year-end trading
Summary:
Trading volumes reached the lowest level all year on Tuesday as investors say they are becoming increasingly comfortable with the theory that the Omicron variant may not lead to harsh restrictions on commerce and movement. US state governors are implementing light-touch measures to try to avoid disruptions. Treasury yields moved up globally while the NASDAQ and Russell experienced relative weakness.
Overnight:
- China PBOC Open Market Operation (OMO) injects CNY200B in 7-day reverse repos with a net injection of CNY190B
- China Q4 Beige Book showed companies cut investment and remained cautious on borrowing
-(EU) EU Economic Commissioner Gentiloni (Italy) said to intend to propose a modification of the EU Stability Pact in 2022 - financial press
- Spain parliament approves record 2022 budget; Minimum 15% corporate tax clears final hurdle 2022
US Session
-(BR) Brazil Dec FGV Inflation IGPM M/M: 0.9% v 0.7%e; Y/Y: 17.8% v 17.6%e
-(CL) Chile Central Bank (BCCh) Dec Minutes: Pace of Hike in December to likely will set pace for future decisions
-(US) NOV ADVANCE GOODS TRADE BALANCE: -$97.8B V -$88.1BE (record deficit)
-(US) NOV PRELIMINARY WHOLESALE INVENTORIES M/M: 1.2% V 1.5%E
-(US) NOV PENDING HOME SALES M/M: -2.2% V 0.8%E; Y/Y: +0.2% V -4.7% PRIOR
-(US) Nevada reports Nov casino gaming Rev $1.32B, +71.4% y/y; Las Vegas strip Rev $755.1M, +115.6% y/y
-(US) DOE CRUDE: -3.6M V -3ME; GASOLINE: -1.5M V 0ME; DISTILLATE: -1.7M V 0ME
Europe and Asia
-(CN) China Antitrust agency said to vow boosting antitrust law enforcement in 2022 - press
-(TR) Turkey said to be proposing a bill to 'bring order' to the cryptocurrency market
-(IN) India Central Bank (RBI) Financial Stability Report: Sees India banks' gross bad-loan ratio at 8.1% by Sept 2022
-(FR) France Health Min Veran: Expect flu epidemic to be strong this year which will have an impact on the hospital system
-(RU) Russia President Putin: Nord Stream 2 will serve to stabilize gas prices in Europe; Russia has the capacity to increase gas exports
-(RU) Russia Central Bank official Tremasov: Russian economy is 'close to overheating'
Corporate Headlines
-JD enters into 5-year $2.0B green loan facility; Raises share buyback amount by $1.0B to $3.0B and extends length through Mar 2024
-BABA said to explore options for its Weibo stake with some state firms, including Shanghai Media Group - press
-FCEL Q4 top and bottom line miss estimates, adj EBITDA loss widens y/y
-TSLA CEO Musk files Form 4 to exercise ~1.56M options at $6.24/shr; Sells ~$1.0B in last tranche and completes his stock selling plan
-VSCO affirms Q4 outlook; Enters $250M accelerated share repurchase program (5.9% of market cap)
-IFX.DE sees supply chain issues to last well into 2022 - German press
- Dow Jones +0.2%
- S&P 500 +0.0%
- Nasdaq -0.4%
- Russell 2000 -0.1%
Treasuries:
- US 2-yr: +0.2bps at 0.752%
- 10-yr: +3.6bps at 1.517%
- 30-yr: +4.1bps at 1.944%
- 2-10 spread: +3.4bps at 0.781%
Commodities:
- Crude oil $76.14, +0.2%
- Gold $1,802/oz, -0.5%
- Silver $22.81/oz, -1.4%
- Copper $4.40/oz, -0.7%
Gapping down
In reaction to earnings/guidance:
- FCEL -9.4%, CALM -7.7%
Other news:
- MTRX -8.6% (to be removed from S&P SmallCap 600)
- MARA -2.8% (announces deal with Bitmain to purchase an additional 78,000 Miners for $879.1 mln)
Analyst comments:
- MEOH -0.5% (downgraded to Mkt Perform from Outperform at Raymond James)
Gapping up
In reaction to earnings/guidance:
- VSCO +7% (reaffirms guidance; $250 accelerated share repurchase program)
Other news:
- NRXP +12.2% (files Breakthrough Therapy Designation request for ZYESAMI)
- LHDX +9.4% (announces a new distribution agreement for at least 600000 tests in 2022 with Co-Defend and Co-Protect)
- CALX +6.8% (to join S&P MidCap 400)
- ENS +2.9% (announces integration of its ABSL Lithium-ion batteries into the NASA Webb Telescope launch)
- QDEL +1.2% (Antigen Tests Detect the Omicron Variant)
- LQDA +1.1% (announces stipulation of partial judgment in favor of Liquidia filed in Hatch-Waxman litigation)
- DAR +0.9% (to acquire Valley Proteins for $1.1 bln in cash)
Analyst comments:
- ORTX +6.7% (resumed with an Overweight at Cantor Fitzgerald)
- NRIX +2.7% (initiated with a Buy at H.C. Wainwright)
- VXRT +2.2% (resumed with a Buy at Jefferies)
- PEAR +1.7% (initiated with a Buy at Citigroup)
- VAXX +1.5% (resumed with a Buy at Jefferies)
- BTX +1.3% (initiated with an Overweight at Cantor Fitzgerald)
- AKAM +0.8% ( initiated with a Buy at DA Davidson)
Early premarket gappers
- Gapping up:
- CALX +7.9%, ENS +2.9%, QDEL +1.6%, VALE +1%, DAR +0.7%, ASPN +0.7%, HUN +0.5%
- Gapping down:
- MTRX -8.3%, CALM -7.7%, JD -0.5%
Hedge funds bet against market pessimism on US economic outlook
Some players anticipate steepening yield curve despite it being a trade that inflicted pain this year
Some hedge funds are betting that pricing in the bond market that reflects pessimism about the US economy will not last, remaining in a trade that has cost some of the biggest players billions of dollars this year.
The Federal Reserve’s recent pivot towards a more aggressive strategy to fight elevated inflation has flattened the so-called yield curve, a signal that some investors anticipate that the US central bank’s policy tightening could eventually crimp longer-term economic growth.
The yield curve shows the different interest rates that investors demand for holding shorter and longer-dated government debt.
But traders and strategists say that some hedge funds are wagering that the yield curve will not flatten much more. Instead, they are once again betting that yields on long-term US government bonds will eventually rise, and rise more than yields on shorter-term debt.
Kavi Gupta, Bank of America’s co-head of rates trading, said that funds were indeed “still in steepeners”.
Whether that reflects optimism about the economy is an open question, as the difference in yield between two and 10-year Treasuries — one popular trade — could widen even if economic activity in the US deteriorated.
“The danger is that if the virus ended up being a lot worse than people are saying right now and you get a proper risk-off, then you take some Fed hikes off the table and the market squeezes and there is a steepening,” Gupta added.
Hedge funds have been making this bet on a steeper curve on and off for months, expecting that as economies emerge from coronavirus lockdowns inflation will accelerate and longer-term bonds will sell off, pushing yields higher.
But while it worked in the first few months of this year, the bet proved painful during the spring and early summer, and again in the autumn as the market moved to price in the likelihood that central banks would act to curb inflation.
“It has been very, very difficult to make money from steepeners this year,” said Andrew Beer, managing member at the investment firm Dynamic Beta Investments.
Tumult in the bond market in October battered some big-name macro hedge funds including Chris Rokos and Crispin Odey. Rokos Capital, one of the world’s biggest macro funds, is down about 25 per cent this year to the end of November. Odey’s European fund is up 25 per cent, having been up more than 100 per cent in early October.
Fresh data compiled by the US Commodity Futures Trading Commission also suggests some funds are once again launching steepener trades.
Leveraged funds for the past two weeks have held net bullish bets on two-year Treasuries futures at just below the seven-year high hit in November, CFTC data showed. While the trend weakened slightly in the seven-day period ending December 21, it is notable that it did not soften even more following a strong hawkish signal from the Fed, which lifted yields on the two-year while sinking prices.
At the same time, funds have been increasing their short positions and trimming their long positions in 10-year futures — a bet that prices will fall and yields rise — pushing their net position to the lowest level since March.
“Levered funds were increasing their steepener positions going into the Fed meeting,” said Gennadiy Goldberg, senior US rates strategist at TD Securities. That the positioning has broadly held since the Fed meeting indicates that some hedge funds are moving against the grain.
Decio Nascimento, chief investment officer at the hedge fund firm Norbury Partners, said he had recently put on US steepeners as his fund’s biggest position as the curve had flattened. He highlighted how long-term interest rates on swaps, tools that let investors protect against bond market fluctuations, briefly fell below shorter-term ones, which he said “makes little economic sense”.
Falling Treasury yields — driven by central bank-induced volatility and Omicron-fuelled market swings — contributed in November to hedge funds’ worst performance since the beginning of the pandemic, the data group HFR reported. Among the worst-hit were macro and relative value funds, strategies that have already suffered serious losses this year on bets that the Treasury yield curve would steepen.
Streaming wars drive media groups to spend more than $100bn on new content
Investment outlays come amid concerns that it will be harder to attract new viewers in 2022
The top eight US media groups plan to spend at least $115bn on new movies and TV shows next year in pursuit of a video streaming business that loses money for most of them.
The huge investment outlays come amid concerns that it will be harder to attract new customers in 2022 after the pandemic-fuelled growth in 2020 and 2021. Yet the alternative is to be left out of the streaming land rush.
“There is no turning back,” said media analyst Michael Nathanson of MoffettNathanson. “The only way to compete is spending more and more money on premium content”.
The Financial Times calculated the planned expenditures based on company disclosures and analyst reports. One entertainment executive called them “mind boggling”.
Most of the companies — a list that includes Walt Disney, Comcast, WarnerMedia and Amazon — are set to rack up losses on their streaming units. Including sports rights, the aggregate spending estimate rises to about $140bn.
Disney’s investment in streaming content is likely to grow by 35-40 per cent in 2022, according to estimates by Morgan Stanley. The company’s spending on all new movies and TV shows is expected to reach $23bn, though the number rises to $33bn including sports rights — up 32 per cent from its total content spending in 2021 and 65 per cent from 2020.
Among Disney’s programmes earmarked for 2022 are a retelling of Pinocchio starring Tom Hanks, a new instalment of the Cars franchise and Obi-Wan Kenobi starring Ewan McGregor. Netflix, ViacomCBS, Fox and Apple also intend to spend billions of dollars on content.
“The real headline in 2022 is how much money has been allocated to the platforms for content,” said John Sloss, partner at law firm Sloss Eckhouse Dasti Haynes and head of Cinetic Media, a talent management and advisory agency. “It is just mind-boggling”.
Subscriber growth has slowed for Netflix, Disney’s Disney Plus streaming service and others in the past few quarters. Netflix executives blamed this on a weaker schedule of programming owing to coronavirus-related production delays, a problem that plagued the entire industry.
But the fact that even the industry leader must invest heavily to churn out shows and keep pace with competitors has caused some investors to ask whether video streaming is a good business.
Netflix is set to spend more than $17bn on content next year — up 25 per cent from 2021 and 57 per cent from the $10.8bn it spent in 2020. The company expects to break even and become free cash flow positive in 2022.
“This is going to be a milestone for Netflix,” if it achieves those goals, said Tuna Amobi, senior media and entertainment equity analyst at CFRA.
For more traditional media companies, however, the transition from traditional television and movies to streaming “has been significantly dilutive to [profit] margins,” Morgan Stanley noted recently.
“The market is increasingly concerned there is no pot of gold at the end of this rainbow”, the bank’s analysts said.
Costs have been rising across the board as the biggest entertainment and technology companies rush to produce more shows to feed their streaming services. Finding locations to film in Los Angeles has become difficult. Sound stages, historically a niche form of real estate, have attracted investments from private equity firms Blackstone and TPG.
“Because of just the competition for talent, for everything that’s involved in productions, content costs have gone up”, Christine McCarthy, Disney’s chief financial officer, told investors last month.
- Oxford Nanopore (4R0 TH) +3.2%
- Kerry Group (KRZ TH) +2.1%
- Rio Tinto (RIO1 TH) +1.9%
- Hexagon (HXG TH) +0.9%
- Schneider Electric (SND TH) +0.4%
- Deutsche Telekom (DTE TH) -0.8%
- Fuchs Petrolub (FPE3 TH) -0.9%
- Eurofins Scientific (ESF0 TH) -0.9%
- Lufthansa (LHA TH) -1%
- Qiagen (QIA TH) -1.2%
- Evotec SE (EVT TH) -1.2%
- CD Projekt (7CD TH) -1.3%
- Solvay (SOL TH) -1.4%
- Telefonica (TNE5 TH) -1.5%
- TUI (TUI1 TH) -6.4%