Redefining Video Game Industry: Microsoft(MSFT)

In game industry, video game consoles are important for players to access particular games. If you have Sony’s console, PlayStation 5, then, you may play Sony’s games. Having been in this industry longer than any other companies, Sony has been stronger than Microsoft particular in Europe and Asia; PlayStaion has been a better tool, as well.

Something interesting happens recently in this Status Quo relationship between Microsoft and Sony.  Xbox Live membership reached 100 million users, has tripled during the Xbox One life cycle due to Microsoft’s duel strategies: software and cloud services (Gallagher, 2020, September 18). Microsoft enabled users to stream any Xbox One game to a mobile device (Needleman, 2019, June 9).

In the past two decades, Microsoft has expanded its presence in gaming markets (Aryedlund, 2002, January 7; Guth & Wingfield, 2006, April 26). In 2013, Microsoft launched its Xbox One equipped with motion sensors and Skype technology (WSJ, 2013, May 29). However, it did not impress much to investors and game players.

Under Satya Nadella, however, Microsoft fortified its position against Sony by acquisitions of Mojang AB for $2.5 billion in 2014 (Needleman, 2018, June 11) and by recent acquisition of ZeniMax Media Inc for $7.5 billion (Tilley & Needleman, 2020, September 21).  Thus, Microsoft has increased gaming portfolio to 23 games from 15. Now, Microsoft promised 60 games available in its new coming Xbox One System and Windows PCs. Its new console has custom-designed processor with Advanced Micro Devices. Microsoft focused on its subscription services such as Game Pass and Xbox live. It seems that Satya Nadella sees something in video game industry, when he said, “Gaming is a much bigger market than it ever was”(Tilley & Needleman, 2020, September 21).

 

Please cite as:

Rachel Kim (2020, October 21). Redefining Video Game Industry: Microsoft(MSFT), The Blue Ocean Management.com, Retrieved from: https://theblueoceanmanagement.com/2020/10/21/redefining-video-game-industry-microsoftmsft/

 

 

References:

Aryedlund, 2002, January 7, Barrons.com

Needleman, 2018, June 11, Wall Street Journal

Needleman, 2019, June 9, Wall Street Journal

Gallagher, 2020, September 18, Wall Street Journal

Guth & Wingfield, 2006, April 26,Wall Street Journal

Tilley & Needleman, 2020, September 21, Wall Street Journal

WSJ, 2013, May 29, Wall Street Journal

New Energy Markets are Getting Hot

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Following the previous hydrogen forecasts from Morgan Stanley and by Goldman Sachs(Goldstein, 2020, September 23), the BofA team (Alpert, 2020, September 30), McKinsey counted five major industries will replace their fossile energy with new type of renewable energy (McKinsey, 2020, October 5). They are transportation, power generation, industrial fuel, fuel for residential and commercial buildings. The competition among wind power, solar power, hydropower, and nuclear power has gotten high. By 2050, according to Bank of America research team, clean-hydrogen industries could see $2.5 trillion in annual revenues (Alpert, 2020, September 30).

Knowingly, Bill Gross bets on the two companies: Energy Vault store solar and wind power for use on cloudy or windless days; Heliogen, uses mirrors to generate the intense heat needed to make hydrogen, as well as steel and cement (Hodari, 2020, October 6). They are not in public stock markets yet backed by SoftBank. McKinsey highlighted transport industry where fuel cell electric vehicles (FCEVs) might be better for American trucks running long distance Plug Power (PLUG) and ITM Power (ITMPF) (McKinsey, 2020, October 5). These two companies are publicly traded, so you can invest them.

The BofA survey listed the industrial gas giants: Linde (LIN), Air Liquide (AIQUY) and Air Products and Chemicals (APD); hydrogen fuel cell specialists: Plug Power (PLUG) and ITM Power (ITMPF); the motor vehicle suppliers:Cummins (CMI), Daimler (DDAIF), Volvo (VLVLY), Toyota Motor (TM) and Hyundai Motor (HYMTF) (Alpert, 2020, September 30). They are all good options for long-term investment.

When markets show no clear direction, it is time for value investors to identify future trends that will come soon and dominate markets in the long run. When you are on the right strong wave, you can ride long.

Cite as:

Rachel Kim (2020, October 7). New Energy Markets are Getting Hot, The Blue Ocean Management.com, retrieved from: https://theblueoceanmanagement.com/2020/10/07/new-energy-markets-are-getting-hot/

References are as follows:

Alpert, 2020, September 30, Barron’s.com

Goldstein, 2020, September 23, Barron’s.com

Hodari, 2020, October 6, Wall Street Journal

McKinsey, 2020, October 5, Wall Street Journal and GLOBE NEWSWIRE

Mortgage Insurance Companies Bounced Back

US investors and market participants learned so much from 2008 Financial crisis when equity market sunk deep and recession sat in briefly. This time when Covid-19 pandemic hit, Fed ensured both markets as early as March 2020, equity market and consumer spending remain working, so that when economic activity regains, market will recover fast at its full length.

Now, September 2020 we have some data available showing what people have done during the lock-down. According to the earnings report in August 18, Home Depot had its highest revenue growth, 23% up from the last year,  in its last 20-year-business history (Grossman, 2020, Aug 18). Likewise, O’Railly, auto parts retailer also outperformed its analysts estimate, showing that consumers spent time to repair and maintain their cars home (Lee, 2020, July 30). Similarly, US consumers have bought many DYI items from Etsy, Michaels, and Shopify to spend time home productively.

What is the difference between 08 and 2020? In 2008, housing markets were overvalued, and mortgage securities were dysfunctional. In 2020, housing markets are not causing the problems. By contrast, governments asked consumers to stay home. Actually, as the previous article mentioned, more people even bought houses.

Wait! We did see this movie before. Even after the deepest troubled era, essentially, 2013 mortgage insurance companies, Essent Group, Radian Group, MGIC, and NMI Holdings, bounced back, their shares are up 62% in 2013 (Scism & Timiraos, 2013, September 18).

Then, mortgage insurance companies should be in better place than now, in that housing markets are considerably healthy.

Cite as:

Rachel Kim (2020, September 19). Mortgage Insurance Companies Bounced Back, The Blue Ocean Management, Retrieved from: https://theblueoceanmanagement.com/category/theblueoceanmanagement-com/market-trend-foresight/housing-market/

 

References:

Grossman, 2020, Aug 18, Wall Street Journal

Lee, 2020, July 30, Wall Street Journal

Scism & Timiraos, 2013, September 18, Wall Street Journal

Bifurcation in Mortgage Loan Markets

 In early March and April when Covid-19 pandemic just started, mortgage markets sunk steeply. After that short period, there has been bifurcation in mortgage markets recovery between jumbo loans, i.e. larger than $510,400* and conforming mortgage loans. Before Covid-19, jumbo loans were viewed as less risky, as they were owned by wealthier customers (McCaffrey, 2020, July 27). That has changed in Covid-19 pandemic when Fed intervened.

Most banks and non-bank lenders heightened lending standards of jumbo loans, particularly required almost perfect credit scores and high downpayment of  even 35% of the principle (McLaughlin, 2020, June 25). As of June 16, 11.8% of jumbo loans were in forbearance, compared with 8.7% of all mortgages (Black Knight, 2020, July). Please see the table below.

Possible reason that jumbo loans, wealthy house owners, went delinquent higher than conforming loans can be found at the Care Act that government agencies stepped in for defaulted monthly payments of conforming loans. Federal Reserve decisively prevented mortgage market from a possible breakdown as Financial crisis in 2008 and bought unlimited amount of mortgage backed securities (Federal Reserve, 2020, March 23). This measure made conforming loans looking much safer to lenders, than jumbo loans that are not protected by the Care Act. A jumbo loan is too big for government-backed mortgages (McCaffrey, 2020, July 27).

The new strict standards for jumbo loans are one of many changes that Covid-19 brought to us. In addition, shown the graph below, there are high level of new loan originations in June 2020, higher than 2019, which means beyond recovery. Apparently, many people bought their houses (Black Knight, 2020, July).

With low interest rate until 2023, Jerome Powell promised today, September 16, in his FOMC statement, still, buying assets may be MBA finance investment textbook answers. Ideally, the assets must be smaller than jumbo loans. 

 

 

Cite as:

Rachel Kim (2020, September 19). Bifurcation in Mortgage Loan Markets, The Blue Ocean Management, Retrieved from: https://theblueoceanmanagement.com/2020/09/16/bifurcation-in-mortgage-loan/

 

 

 

*Note1: in the high living cost areas, jumbo loans must be larger than $765,600.

References:

Black Knight, 2020, July, Black Knight’s Mortgage Monitor Report, Black Knight Inc.com

Federal Reserve, 2020, March 23, Federal Reserve announces extensive new measures to support the economy, Federal Reserve.Gov

McLaughlin, 2020, June 25, The Jumbo Market Shows Signs of Heating Up, Wall Street Journal.com

McCaffrey, 2020, July 27, Jumbo Mortgage Rates Are No Longer the Cheapest Around, Wall Street Journal.com

Food Industry is Moving Slowly, Very Slowly, to Innovate its Food Product and its Business.

Consumer staple sector might be the most slowly growing one, compared to technology sector. As the prior article suggested, however, there are many indicators that food industry is innovating its products and its business models.

Nestlé keeps its keen eye on the ball namely the most promising markets. For example, global pet food  has jumped to 61% higher than 2010 according to Euromonitor. Likewise, in 2020, US pet owners have increased their spending 9.39% higher than spending in 2018, $90.5 billion (Chaudhuri, 2020, June 15). Pet food and treats are major portion of the spending, which is the revenue of Purina pet food grow steadily. Purina is a business of Nestlé global conglomerate.

Recently, Nestlé made a bet on health science business, allergy treatment. First, Nestlé started purchasing shares of Aimmune in November 2016 and then decided to acquire the company in August 2020 (Bugault, 2020, August 31; Globenewswire, 2020, August 31). The term of transaction is to buy all the outstanding shares of common stock, as Nestlé already owned 25.6% of Aimmune. Based on this bid, Nestlé is going to sell pet foods, treats, and allergy treatment with them. If you think of who pay for all, they might be the same target customers, head of household who might be interested in bulky purchase from one company at good deals.

Cite as:

Rachel Kim (2020, September 9). Food Industry is Moving Slowly, Very Slowly, to Innovate its Food Product and its Business, The Blue Ocean Management, Retrieved from: https://theblueoceanmanagement.com/category/theblueoceanmanagement/market-trend-foresight/

References:

Bugault, 2020, August 31, Wall Street Journal.com

Globenewswire, 2020, August 31, GlobeNewsWire.com

Chaudhuri, 2020, June 15, Wall Street Journal.com

 

Socially Responsible and Conscious Eaters Welcome Beyond Meat &Food Innovation

Now more than ever, socially responsible and conscious customers look for items without feeling sorry for animals. Most new makeup products carry the label saying no animal experiment or no animal cruelty in short. Vegetarians are proud of themselves in this regard. According to the Vegetarian Blogs, 254 million adults are casual vegetarians; 116.8 million are interested in becoming ones.

Meanwhile meat lovers argue that they care for animals. Their punchline is or used to be that they cannot give up on taste of beef barbeques and grilled hotdogs. Beyond Meat is a maker and seller of plant-based meat, who started its business with loyal customers in California.

In 2019, Beyond sold $40.2 million and it increased to $97.1 million in 2020 first quarter. Possible reason might be that the company launched Chinese market via Starbucks. Tyson Foods had to reduce its production due to Covid-19 pandemic (Chin, 2020, May 5).

 

Cite as:

Rachel Kim (2020, September 7). Socially Responsible and Conscious Eaters Welcome Beyond Meat & Food Innovation, The Blue Ocean Management, Retrieved from: https://theblueoceanmanagement.com/category/theblueoceanmanagement/market-trend-foresight/

 

Following a Big Rally and Sober Look

After US stock market were down for the two days, there are theoretical explanations and possibly blamable invisible big institution, namely Soft Bank.

Rising Delta  (Root, 2020, September 1;Root, 2020, September 4 ) was one of explanation that the unusual stock market rally in this unusual circumstance when economic activities are still low, though recovering from entire shot down; while SoftBank might have caused Delta to rise unusually fast (Levisohn, 2020, September 4;McDonald, 2020, September 1). Most investors and traders may have been licking their sour wounds due to stock market down last two days wondering what just happened. Knowing why might be a good start of 12 steps of addiction break therapy, if greed-driven trading is one of mental addiction.

 

Cite as:

Rachel Kim (2020, September 6). Following a Big Rally and Sober Look, The Blue Ocean Management.com, Retrieved from: https://theblueoceanmanagement.com/category/theblueoceanmanagement-com/editorial-notes/

 

 

References:

Levisohn, 2020, September 4, Barrons.com

McDonald, 2020, September 1, The Bear Traps Report

Root, 2020, September 1, Barrons.com

Root, 2020, September 4, Barrons.com

Why Warehouses are Popular? Is it a Short Trend or Long Trend?

Cold warehouses became popular, particularly when Amazon targeted grocery delivery business with its acquisition of Whole Food in 2017 (Stevens, L. & Gasparro, A., 2017, June 16). As Amazon tends to illuminate a promising business area in near future,  this has been a strong trend (Phillips, E. E., 2018, July, 17).

Even before Covid-19 pandemic, online grocery sales grew and cold-storage warehouses are on high demand. Tyson Foods Inc, Kroger Co., Walmart Inc., and FreschDirectLLC are looking for refrigerated warehouses (Phillips, E. E., 2018, July, 17; Fung, E. 2019, December 10).

In Covid-19 Pandemic era, e-commerce sector has been further strengthening, warehouses are getting spotlight. Warehouses are located near city centers with lower rental fees (Wilmot, 2020, August 25). Lineage Logistics LLC and Americold Realty Trust own 63% of the cold-storage warehouses , according to the International Association of Refrigerated Warehouses ( Fung, E. 2019, December 10). If you are looking for a strong and lasting trend, this might be one of food innovation or food business innovation trend.

Cite as:

Rachel Kim (2020, September 4). Why Warehouses are Popular? Is it a short trend or long trend?, The Blue Ocean Management.com, retrieved from: http://theblueoceanmanagement.com

 

References:

Fung, E. 2019, December 10, Wall Street Journal

Phillips, E. E., 2018, July, 17, Wall Street Journal

Stevens, L. & Gasparro, A., 2017, June 16, Wall Street Journal

Wilmot, 2020, August 25,  Wall Street Journal

Emerging Payment Companies on the rise of e-Commerce

Global trends of business have been strengthening e-commerce sector, even before Covid-19 Pandemic. In 2020, it has been a only way to do business in USA when lockdown was announced statewide, particularly New York and California. Due to the importance of online transactions, payment companies are getting attention and higher valuation as well.

There are immense investment interest in payment companies including established ones and emerging new players based on small business. Visa and PayPal Holdings are globally known companies in this sector.

There are BigCommerce, Bill.com, and Coupa Software. Among them, Wix might be a newcomer yet potential one, due to its bases on website building packages that small business owners are familiar with (Demos, 2020, August 27). Wix has some 180 million registered users globally and currently partners with GoDaddy as a endorsed payment (Demos, 2020, August 27; Norton, 2020, August 28).

Cite as: 

Rachel Kim (2020, August 25). Emerging Payment Companies on the rise of e-Commerce, The Blue Ocean Management.com, retrieved from: https://theblueoceanmanagement.com/trendforesight