By Jake Sheckter, Business Editor
Each month’s edition of the YU Observer this year will include a “3-Stock Highlight” on a few stocks that have been in the news lately, have fascinating stories, or provide for an interesting read. On behalf of the YU Observer, we’d like to remind everyone that these stock picks are for educational purposes only and are not to be taken as financial advice or used for investing any real cash. This month, we will be highlighting Microsoft (MSFT) & Activision Blizzard (ATVI) together, Peloton Interactive (PTON), and Spotify Technology (SPOT).
Microsoft (MSFT)/Activision (ATVI)
Now, here’s one for all the gamers. On January 18, 2022, a technology company and stock we all know, Microsoft, announced the acquisition of video gaming company Activision Blizzard. This acquisition bumps Microsoft up to third place in terms of the world’s largest video game company leaderboard (with regards to revenue). The acquisition, according to Newsweek, which is expected to finalize between July 2022 and the summer of 2023, has set Microsoft down a gaming path on which they will generate higher revenues than even Windows for the company. The purchase totals up to a whopping $68.7 billion, far more expensive than the $7.5 billion they paid for ZeniMax in 2020. But this introduces the question we may be wondering; Why is Microsoft doing this? What are they truly getting out of this deal? Two words: Intellectual Property (IP).
As media companies and their respective streaming services have indicated (Disney, Marvel, Amazon Prime, HBO, etc.), intellectual property has been the name of the game for quite some time now. With this acquisition, Microsoft will be obtaining IPs such as World of Warcraft, the Overwatch series, and the absolute mammoth of modern FPS (first person shooter) games, Call of Duty. Not only this, but Microsoft will also acquire Activision Blizzard’s respective subsidiaries which include Raven Software, Treyarch, Infinity Ward, and Candy Crush developer king. Stock wise, Activision jumped from roughly $64 per share to $80 as soon as Microsoft’s announcement. Microsoft’s stock showed some growth but nothing substantial yet.
In addition to their new IP, Microsoft’s strategy also focuses on the actual gamer market share with their Game Pass and subscription programs. Microsoft offers two Game Pass subscription services: Xbox Game Pass and PC Game Pass. Game passes enable subscribers to play various games which get updated every month. Before the acquisition, Microsoft already maintained over 25 million subscribers between the Xbox Game Pass and PC Game Pass. But now, with Activision Blizzard’s nearly 400 million monthly active players in 190 countries and a three billion-dollar franchise, Microsoft and Activision have really been stepping up their “game”.
To learn more about Microsoft’s acquisition of Activision Blizzard, feel free to check out the YU Observer article on the topic: https://yuobserver.org/2022/02/microsoft-wins-big-with-acquisition-of-activision-blizzard/
There are few stocks that have managed to consistently infuriate investors throughout the pandemic due to its extreme volatility and many thinking it’s overvalued. Peloton has been in the news lately for one main reason, and that’s their recent decline. As with most of the stock market over the last 2-3 months, there is a lot of blood in the water. Peloton riled up the stock market community back in the summer of 2020 when they passed the auto company Ford in terms of market capitalization. This makes sense when you consider the fact that, at the time, Ford, has been one of the leading car manufacturers in America for 100 years while Peloton was selling iPads taped to an exercise bike for 8 months? Of course, this was a joke and is in no way meant to be a shot at Peloton, but the more unfunny and important side of this joke lies in what this says about the condition of the market over the pandemic.
Peloton’s immense displays of strength and capturing of market share were largely fueled by pandemic-related restrictions and quarantine, causing millions to stay at home with no access to gyms or health centers. Following these changes, Peloton surged (along with thousands of other overvalued stocks) and became the talk of the year for a long while. But all things must come to an end, and as governments rolled out vaccinations and eased up on COVID-19 mandates, Peloton’s stock price and the market sentiment started slipping fast.
At their pandemic peak, shares of Peloton reached a staggering $162, especially dramatized when compared to their $34.45 share price currently. As people now flock back to gyms and health centers, and find themselves torn between their newfound gym freedom and their Peloton-turned-laundry-rack back home, the future of Peloton is unstable. But on the bright side, this drastically lower stock price allows for better reasonability or understanding with regards to current stock market valuations. In light of these recent stock price blunders, Peloton has now chosen a new company CEO, Barry McCarthy, who has already had a rough start when his first all-hands meeting was crashed by laid-off workers. Good luck Barry!
Honestly, I’ve been wanting to highlight Spotify for months now. Why haven’t I? Because there was always something more pressing or disrupting in the stock market news. But now, Spotify is lit up in the spotlight of controversy and I finally get to write this highlight. Controversy aside for the moment, many investors have latched on to Spotify as the one, somewhat consistent and reasonable stock throughout the pandemic of absurd volatility and beyond outrageous company valuations. As with countless tech companies at the start of the pandemic, Spotify began its gradual climb from a roughly $130 pre-pandemic share price to over $260 within a few months and now standing at $162 today. However, comparatively, they’ve been respectfully consistent, and consistency is key. For most of us, Spotify has become synonymous with music in general. But to call Spotify a standard music streaming service just doesn’t do it justice. Because of Spotify’s other offerings which include podcasts, audiobooks, and self-help guides ranging from public speaking, photography, and time management, among others, a more appropriate definition to capture the essence of their business would be “streaming audio on demand”.
The two most important drivers for Spotify’s business (and basically their stock) are its Monthly Active Users (MAU) and Average Revenue Per User (ARPU). As per its latest annual report, Spotify was available in 93 countries. However, Spotify has decided this wasn’t enough exposure as it is expected to launch in 85 more countries, almost doubling its presence in terms of the number of countries. Spotify’s MAU increased from 124 million in 2016, to 345 million in 2020, to an incredible 406 million by the end of 2021. MAU is a leading indicator for Premium subscribers as well. Approximately 45% of Spotify’s MAU were premium subscribers to its product, and it has largely been around 44-46% of MAU since 2017. Again, talk about consistency. Spotify’s strategy involves tailoring its prices for premium products depending on its affordability to the general population and therefore, the penetration of premium subscribers (within MAU) has been largely stable. Premium subscribers grew at 34.1% during 2016-2020. What drives MAU? Probably global smartphone penetration and adoption. Given Spotify’s product is streaming audio, Spotify cannot make further progress in a market unless the new market has a smartphone and internet. Smartphone penetration increased from about 30% in 2016 to 50% in 2020.
To summarize the buzz and controversy around Spotify, a whole lot of Spotify’s customers, as well as artists with their music published on Spotify are upset about Joe Rogan’s podcast experience, which many are claiming spreads misinformation. After musical legend, Neil Young introduced the “it’s Rogan or me” ultimatum, and after Spotify responded basically saying they don’t respond to threats in an extremely polite manner, Young removed his music from the streaming platform and several other artists have followed suit. The arguments being made are that Joe Rogan’s podcast doesn’t only spread false information regarding Covid-19 and the pandemic mandates but may even cause real harm to certain groups and individuals. Joe Rogan responded saying that he is just trying to spark conversation and hear out different opinions. “Many of the things that we thought of as misinformation just a short while ago are now accepted as fact,” Rogan claimed. Let’s hope Spotify can stay as strong as they have been and continue displaying their greatest strength, consistency.