Happy Wednesday! 🐪

📝 Focus

• Switching off Nintendo?

📊 In the Markets

• Air leaks from Airbnb

• Mixed China trade, Sluggish Japan, US caution & puppets

📖 MoneyFitt Explains

🎓️ When companies give "Guidance"

📝 Focus

Switching off Nintendo?

Game over? In its results for the year to March 2023 (which most Japanese companies also follow) Nintendo reported revenues down 6% and profits down 9% largely from a sharp 22% drop in sales of the Switch. Coming after a 20% drop the year before, it seems the massive, record-breaking popularity of the six year old console is already evaporating (though semiconductor shortages in those years did also constrain supply.)

..... ▷ Widely considered a pandemic "winner", Nintendo’s sales and profits surged as more people stayed home and played video games on its hugely popular Switch console, with titles such as Animal Crossing, Pokémon, Super Mario Bros and the Legend of Zelda. In February, the Switch console surpassed total sales of Nintendo's iconic Game Boy just six years since its launch, but it is starting to show its age. It has also overhauled Sony's PS4, despite launching 4 years later. Nintendo has no plans to release any new hardware over the next 12 months, with a rumoured next-gen game console due to be released in 2024. The company typically focuses on profitability rather than market share and appeals to a wider range of consumers than its peers.

..... ▷ Nintendo was founded in 1889 as a manufacturer of traditional Japanese handmade hanafuda playing cards, moved into arcade machines in 1975 and released its first home video game console in 1977. Its first hit arcade game was Donkey Kong in 1981, in which a certain red-hatted, moustachioed character originally called Jumpman appeared to save his girlfriend from the giant ape.

..... ▷ Jumpman turned into Super Mario, with this year's much-hyped “The Super Mario Bros. Movie” making a record-breaking debut at the box office, the biggest worldwide opening ever for an animated film and a part of Nintendo's push to expand the use of its intellectual property and boost its brand. The movie didn't do so well with reviewers: The Chicago Sun-Times called it "a fireball of animated garbage” with the NYT calling it "a soulless and joyless exercise in corporate branding." But audiences like it, with a 96% score on Rotten Tomatoes.

📊 In the Markets

Mixed China trade: Hong Kong and China shares fell sharply on Tuesday on disappointing China trade figures in April. Imports contracted 7.9% compared to the year before, stoking fears of still feeble domestic demand months after the lifting of three years of COVID curbs and far weaker than expert forecasts of just a 0.2% decline. Exports still rose, though at a slower pace of 8.5% after the "surprising" 14.8% jump in March, helped along by a low comparison base.

..... ▷ The mixed trade data adds to the conflicting signals about China's economic recovery. The export numbers contrast with factory activity figures from last week that showed sluggishness thanks to weak global demand for goods. Authorities have been warning of an incomplete recovery in a "severe" and "complicated" external environment with increasing recession risks for many of China's key trading partners.

Japan sluggish: New BOJ Governor Kazuo Ueda looks set to keep the ultra low interest rate, ultra loose monetary policy of his predecessor in place for some time longer as household spending and real wages in Japan continued to slide.

..... ▷ March Japanese household spending fell 1.9% in March, shocking Tokyo's Finest, who had been expecting a 1% increase. "Real wages" (i.e. adjusted for purchasing power) dropped 2.9% to mark the 12th consecutive monthly decline as food and energy price inflation ate away more than the wage increases workers have seen. The "lost-decades" of Asia’s most advanced economy seem endless.

US caution: Stock indexes closed lower on Tuesday as investors stood on the sidelines ahead of a key inflation report and a meeting (that ended with nothing decided) between President Biden and the Republican House Speaker to discuss raising the $31.4 trillion debt ceiling. Investors feel, with some justification, that politicians really don't understand the urgency of raising the debt ceiling and won't act until markets lose their s**t and hammer their constituents’ retirement accounts.

..... ▷ Back in 2011, Congress only reached a deal to raise the debt ceiling two days before money would run out, which triggered the worst week for financial markets since the 2008 Global Financial Crisis and led to the United States getting first and (so far) only credit downgrade.

..... ▷ Not helping, New York Fed President John Williams cautioned that “We haven’t said we’re done raising rates.” He explained that interest rate increases take time to work their way through the economy (the "lag between policy actions and their effects") before bringing inflation down to the 2% target. Which actually doesn't support what he's saying about not necessarily being done with hiking interest rates: If hikes in the past are still feeding through into lower inflation in the future, does it make sense to keep on hiking before the effects show up?

Air leaks from Airbnb

Shares of Airbnb fell 12% in extended, after-market trading on Tuesday on slightly weaker-than-expected revenue guidance and a cautious outlook for Q2. And this came after reporting first-quarter profits that were MORE THAN DOUBLE the average forecast of Wall Street's highly-paid analysts, and a turnaround from a loss in the first quarter of the previous year. The first quarter saw over 120 MILLION nights and experiences booked, an increase of 19% from the previous year.

..... ▷ Airbnb said that it had a “strong start” to the year and was expecting another “strong summer travel season” but in their guidance🎓 warned of tough comparisons to last year for “Nights and Experiences Booked" in the second quarter since that period saw huge pent-up pandemic demand unleashed. Seems quite obvious and doesn't appear bad enough to wipe out $10bn in market value, but we shall see what happens in Wednesday's regular trading.

..... ▷ Airbnb is a peer-to-peer platform with a two-sided network effect, meaning the more travellers there are, the more host properties there will be, and the more properties there are, the more travellers will be drawn to it. The keys to the business model are its ease of use and the commoditisation of trust between property owners and short-term renters (which includes two-way reviews, host and guest profiles, integrated messaging and secure payments) which earns Airbnb a service fee of between 5%-15% of the booking from guests 3% from hosts.

..... ▷ While definitely a massive industry (and often small town) disruptor, in some ways it also operates the way traditional hotel companies do, primarily focusing on branding and marketing, while leaving the ownership of the properties to real estate investors. The property owners pay them fees from the revenues and have to maintain the properties to strict standards set by those hotel companies. Neither Airbnb nor hotel companies (like Marriott, Hyatt and Intercontinental Hotels) own significant amounts of real estate.

📖 MoneyFitt Explains

🎓️ Guidance

• Companies sometimes give a heads-up forecast or pre-announcement to investors to help them understand their prospects better. Generally, they don't want to surprise the stock market by too much, particularly if it's a bad surprise as the share price could drop on the actual news... it's sometimes called a "profit warning" (they don't mind good surprises as much!)

• This is known as "guiding forecasts" for investors and analysts but it's simply managing expectations.

• In practice, shares often move on guidance anyway. Guidance is just a forecast based on current conditions usually before the end of the period in question (and often at the time the previous period results are announced) and can turn out to be wrong, though of course companies are not allowed to be misleading on purpose.