Daily Brief: Sony Does Great, Shame About Spotify

Daily Brief: Sony Does Great, Shame About Spotify

about 3 years ago3 mins

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Sony pressed up, down, triangle, R2, square, left, R1 on Wednesday, and – congratulations! – the gaming heavyweight unlocked better-than-expected quarterly earnings!

What does this mean?

Some of you have spent your lockdowns baking sourdough, others have dabbled in Zoom-based yoga, but loads of you have picked up a games controller. That demand – as well as the launch of the PlayStation 5 in November – drove revenue in Sony’s gaming division 40% higher than the same time the year before. Throw in a record number of PlayStation Network subscribers and blockbuster sales of its Spider-Man game, and the company’s earnings came in well ahead of analysts’ expectations. It did so well, in fact, that it was confident enough to up, up, up its profit expectation for the rest of the year by more than 30%.

Sony’s shares surged

Why should I care?

For markets: Chips make the world go round.

PlayStation 5s may be flying off the shelves, but Sony’s been struggling to meet demand. There’s a pandemic-driven shortage of microchips right now, and since they’re used in everything from smartphones to, yep, games consoles, there’s serious competition for the little supply there is. Sony might be hoping the delays won’t impact its lead on its biggest rival: data last week showed it’s sold twice as many PS5s as Microsoft has its XBox Series X console.

Most popular console for every country
Source: Gaming Smart

Zooming out: You’ve had your fun, Spotify.

This gaming uptick has likewise worked out well for Nintendo, which posted strong quarterly earnings earlier in the week. But the home entertainment boom giveth and taketh away: Spotify, for one, “pulled forward” so many new customers earlier in the pandemic that its outlook for new subscriber numbers fell well short of investors’ expectations. And while the number of last quarter’s premium subscribers – which account for the majority of its revenue – topped estimates, investors – who are all about the future, not the past – initially sent the audio streaming giant’s shares down 10%.

Spotify tumbled

Keep reading for our next story...

Emerging Markets May Have Already Peaked For The Year

EMs image

So much for investors going abroad to “find themselves”: Morgan Stanley announced on Wednesday that emerging market (EM) stocks might’ve already peaked for the year.

What does this mean?

EM stocks have been doing well lately: one of the key EM indexes has climbed 80% since March, and it reached an all-time high just last month. That might be because the dollar has been weakening relative to the stocks’ underlying currencies, which makes them worth more to US investors. Or it could be because EM stocks tend to mirror global economic performance, which has been looking more promising ever since the vaccines were announced.

Enter Morgan Stanley with a reality check: it pointed out that the key EM stock index is already higher than the bank expected it to be at the end of this year, which means it probably doesn’t have much further to climb…

EM stocks have overshot Morgan Stanley’s estimate

Why should I care?

For markets: There’s method behind Morgan’s madness.

There were a host of reasons Morgan Stanley came to this conclusion, but here are three of the biggies. First, the firm pointed out that the US dollar’s value has actually stopped falling relative to other currencies. Second, copper – which is mostly produced in emerging markets – tends to see its price move in line with EM stocks, and that price is currently on the decline. And third, investors have been pouring a serious amount of money into EM funds – a move that’s historically come just before a fall in those regions’ stock prices.

For you personally: India might be your best bet.

If you are going to take a chance on emerging markets, Morgan Stanley thinks India’s the best place to go looking for opportunity. The bank reckons the Indian government’s recently announced budget could do a good job of boosting the country’s economy, which should have a positive effect on company earnings and could, in turn, send the country’s stocks up by as much as 10%.

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