Sony Caught In A Blizzard; ASML’s Chip Challenge & Boring Bank Stocks
Sony’s Blue Screen Of Death
Great Ones, yesterday there was a seismic shift in the video game market.
A watershed moment that, if government regulators allow it to stand, will completely reshape the video game landscape … giving rise to a new, more digital market with a multitude of investment opportunities.
The Blizzard buyout is the biggest in Microsoft’s history, and it could turn out to be the most profitable as well … but not for the reasons that many analysts and gamers think.
You see, most analysts and gamers are worried that Microsoft will limit the availability of Activision games.
The video game industry loves its “platform exclusives” as a way to drive console sales. Some games you can only play if you own a Microsoft Xbox, some only with a Sony (NYSE: SONY) PlayStation … some only on a PC or laptop.
The industry took this even further, making some in-game characters, weapons, perks, customizable content and even entire game levels and stages available only on certain consoles or platforms.
So, you like that WWII authentic uniform and weapons loadout? Yeah, you’ll need to play Call of Duty on Xbox to get it. Sorry, bud.
The fear is that by acquiring Activision Blizzard, Microsoft will now flex its muscles to make this raft of AAA video game titles available only on Xbox.
And we’re not talking run-of-the-mill games or titles with niche popularity — we’re talking multimillion-dollar franchises like Call of Duty, Diablo and World of Warcraft. These games are huge among a broad swath of video game players.
According to analyst Amir Anvarzadeh of Asymmetric Advisors: “With Call of Duty now most likely to be added exclusively to the Game Pass roster, the headwinds for Sony are only going to get tougher.”
The problem with this argument is that Microsoft would have to be completely stupid to go the exclusivity route — doing so would cut off literally billions of dollars in sales to Sony PlayStation console owners.
Furthermore, even a hint that Microsoft could shut off the AAA video game spigot from Activision Blizzard would get the Federal Trade Commission (FTC) and the Justice Department hot on Microsoft’s heels with antitrust litigation.
Microsoft has been there, done that on antitrust. It’s not going there again. And it doesn’t have to.
What Microsoft is really trying to do is create the Netflix (Nasdaq: NFLX) of video games … not lock all those sweet Activision games behind an exclusivity wall.
According to Xbox CEO Phil Spencer, Microsoft “will offer as many Activision Blizzard games as we can within Xbox Game Pass and PC Game Pass.”
Microsoft already has a massive stable of games on Xbox Game Pass, with more than 25 million subscribers. Adding Activision Blizzard games to the mix will almost assuredly increase subscribers and, of course, revenue.
What’s more, now is the perfect time to go all-in on Xbox Game Pass. We all know that both Sony and Microsoft are having supply chain issues due to the massive shortage of semiconductors. Both the new Xbox and PlayStation 5 are in scarce supply — trust me, I know.
But what if you didn’t need either an Xbox or a PlayStation 5 to play the newest titles? What if you could just play them on your PC or laptop? That’s what Microsoft’s Xbox Game Pass does. You no longer need to find the newest console because you can play the games on the PC/laptop you already have at home.
This is Microsoft’s long-term strategy: Create a “Netflix of video games” that is platform-agnostic and drive the console market one step closer to extinction. With the acquisition of Activision Blizzard, Microsoft just took a rather large leap in that direction.
So, while analysts are fretting over exclusivity and Microsoft squeezing Sony out of some rather desirable AAA video game titles, the real threat to Sony lies in the long-term fallout from Xbox Game Pass.
Assuming the FTC and the U.S. Justice Department don’t block it, the Activision Blizzard acquisition is yet another reason to consider buying Microsoft stock … if you don’t own it already.
Microsoft? Ugh … not to be a hipster, but literally everybody already knows about Microsoft. Gimme something that’s actually … micro!
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Good: ASML Chips In
ASML Holding N.V. (Nasdaq: ASML) might like to jokingly call itself “the most important tech company you’ve never heard of,” but for those of us who are privy to ASML’s semiconductor superstardom, its latest earnings beat comes as no surprise.
If you aren’t already “in the know” on ASML, the long and short of this company is that it’s a semiconductor equipment maker. ASML literally makes the machines that make semiconductors, which each of today’s leading chip companies is in desperate need of.
You know … because of that ongoing chip shortage we talk about every week?
With global chip demand far outweighing ASML’s semiconductor supply, the company’s been blowing away Wall Street’s earnings expectations every quarter for over a year — and today’s fourth-quarter earnings announcement was no exception.
Net income accelerated to €1.8 billion ($2 billion) on sales of €5 billion ($5.6 billion), which comes out to €4.39 ($4.98) in per-share earnings. For the record, income also rose 29% from the year prior, with sales increasing 16% to €4.3 billion ($4.8 billion).
What does this mean for ASML investors? Basically, the impressive run that ASML stock has gone on this past year is likely to continue … despite January’s tech sector slowdown.
If you’re unlike Wall Street analysts and believe the chip shortage will continue (Narrator: It continued), then now might be a great time to buy ASML stock … assuming semiconductors are what make your pulse quicken and your portfolio isn’t already filled to the brim with chip stocks like some Great Ones out there.
(Speaking of chips, one little-known tech revolution is banking on companies like ASML to step up their semiconductor supply. Click here to see why.)
Better: Take That To The Bank!
Bank stocks admittedly don’t get a lot of burn in Great Stuff because … well, they’re boring. But considering all the banking hubbub floating around the Street today, you knew one of these big bank behemoths was bound to come up at some point.
Enter Bank of America (NYSE: BAC), which just posted a 28% rise in profits year over year and blew past the Street’s conservative $0.77 per-share earnings estimate. Earnings actually totaled $0.82 per share for a grand total of $7 billion.
I can see why bank stocks don’t usually make the cut…
Yeah, well, that’s because you haven’t heard about the real diamond in Bank of America’s rough: compensation costs.
Ooh, I’m speechless already…
You see, last week, a bunch of banks started crying over having to raise employee wages to offset rising inflation. Higher wages eat into a company’s overall profits, and that’s bad news bears for big banks trying to meet Wall Street’s lofty revenue and earnings expectations every quarter.
But rising wages weren’t a problem over at Bank of America. Even though it hiked labor costs in 2021 just like its banking brethren, Bank of America still posted its second straight quarter of positive operating leverage.
In other words, while fourth-quarter earnings were a bummer for most bank stocks, Bank of America came up aces. That’s why BAC stock is up almost a full percent today (don’t get too crazy now) while competing bank stocks continue their low, low, low, low downward descent.
Best: SoFi’s Slam Dunk
Haven’t had enough of today’s banking binge sesh?
Good! Cause the fun continues with wannabe banker SoFi (Nasdaq: SOFI), which just got approval from two key regulators — the Office of the Comptroller of the Currency and the Federal Reserve — to become a full-fledged bank holding company.
And there was much rejoicing!
For the record, this isn’t SoFi’s first foray into the world of finance. The San Francisco-based company already offers plenty of banking products like loans, cash accounts and debit cards.
But it’s not technically a bank. Instead, it relies on partnerships with other banks to hold customer deposits and issue loans.
To skirt this problem, SoFi’s buying California community lender Golden Pacific Bancorp, which it plans to run as a subsidiary called SoFi Bank. Real original, I know.
Despite its dispassionate name, SoFi Bank is the key to bridging the gap between SoFi and the big boys of the banking world. Not only can SoFi cut out other financial middlemen going forward — giving it a bigger slice of each customer transaction — but it can also offer more competitive rates thanks to these new cost savings.
As you can expect, this news was music to SoFi investors’ ears. The tech titan turned banking big shot rose nearly 18% following today’s approval announcement and will likely climb higher in the days ahead.
Poll day is upon us once again, Great Ones — your chance to shine and share your opinion on the week’s water cooler conversation.
Granted, you can always stop by our virtual water cooler at GreatStuffToday@BanyanHill.com anytime with your hot takes and spit takes in the inbox. And if you really send us some heat, your email might even be featured in this week’s edition of Reader Feedback. Imagine that!
With so much drama in the video game scene, it’s kinda nice being MSFT … or something along those lines. But when it comes to tech investing, somehow … some way, Microsoft keeps comin’ up with funky investments like every single day.
What is this, 1998?
Oh man, if only … if only… Imagine being able to feel the disappointment of the Star Wars prequels all over again?
Or, more to the point, what if you could’ve bought the Netflix of gaming even before, you know, Netflix was the Netflix of Netflix?
Um, come again?
Microsoft … do you like it? Since we obviously can’t go back to the past and scoop up MSFT stock on the cheap — where’s your time turner now, Hermione — the Activision Blizzard acquisition is yet another reason to think about buying Microsoft stock now.
But I know you Great Ones don’t fool around when it comes to tech investing, and I’m willing to bet more than a few of you might already have a bunker full of MSFT shares under lock and key, never to be opened until Microsoft rules the galaxy.
That’s all nice and dandy, but for the rest of you … are you invested in Microsoft right now? In other words: You down with MSFT?
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Thanks to each and every one of you who replied (or are about to reply) to our polls!
And if you’re looking for last week’s poll results, look no further. We held no punches and went straight for the jugular last week, asking your fellow Great Ones for your biggest trading challenges.
Right off the bat, 22% of you Great Ones are Great Ones after my own heart, looking to up your options game this year. Good luck to you all, and stay away from those YOLOs like they were deep-fried Twinkies. You don’t need it; you don’t need it.
A whole 64% of you pulled a Gambler move, voting that you’re not sure when to hold ‘em and when to fold ‘em — a tale as old as time — while another 14% of you want to work on that whole “researching stocks” thing everyone’s talking about.
Or — call me crazy — what if you just forgot about hodling stocks altogether?
Here comes the rant again…
Relax, Annie Lennox, I’m only saying … there’s no guesswork when you’re only making one trade on the same symbol week in and week out. Just ask Mike Carr, one of the True Options Masters.
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And on that note, I’m just wondering … seeing as none of you had “learn how to trade crypto” on your investing to-do list … are y’all just not into crypto? Or are you already crypto connoisseurs who don’t need no investing guru?
Frankly, I’m not sure what worries me more…
Let me know in the inbox what you think about ditching stocks and learning to love the options bomb — or chime in with your thoughts on investing in ol’ Softy.
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Until next time, stay Great!
Editor, Great Stuff