Happy Friday!

📝 Focus

• Zelda and Mario's Record Run (Nintendo)

📊 In the Markets

• AB-Inbev, AirBNB, Apple, Amazon

• Cage Fight not a Knockout (Meta, X/Twitter)

📖 MoneyFitt Explains

🎓️ US Treasuries

📝 Focus

Zelda and Mario's Record Run

Nintendo clocked record results in the June quarter, the first of its fiscal year ending March 2024. It came thanks in large part to the runaway, blockbuster success of The Legend of Zelda: Tears of the Kingdom, which debuted to rave reviews in May. Zelda was a killer "system seller", a game that is so compelling that to play it, buyers are "forced" into buying the entire console system. Massive revenues from Zelda plus blockbuster box office takings from a certain moustachioed Brooklyn plumber drove sales of the venerable Switch gaming console, which is where the real money is made: despite the successes of Zelda and Mario, 92% of Nintendo's sales in the quarter came from the innovative but ageing Switch console and games. More software launches are coming this year (Detective Pikachu, Super Mario Bros), but the new console next year is what investors will be focusing on.

..... ▷ The Legend of Zelda: Tears of the Kingdom sold 18.5 million units from its release in mid-May to June 30, the highest “global sell-through of first-party” for a first quarter since the launch of the Switch back in 2017. Rated among the best games of all time, it's already sold well over half the 31 million units that its series predecessor, Breath of the Wild, has sold since its launch as the debut Switch game. Tears of the Kingdom was a major driver of 3.91 million units of the Switch in the quarter, the majority of which were for the pricier OLED version, driving operating profits up 82% on the year-ago quarter to ¥185bn (US$1.3bn) on revenues of ¥461bn -- which blew past analyst forecasts of just ¥395bn.

..... ▷ The seven-year-old Switch (ancient in gaming terms) has now racked up total global sales of nearly 130mn units, which is still shy of the Nintendo DS's 154.02mn but ahead of the original Game Boy's116.9mn and miles ahead of its predecessor Wii at 102mn. For those who remember it, 2001's GameCube managed 22mn. The previous quarter, after Mario but before Zelda, had seen Switch sales fall precipitously, leading to disappointing results and calls of its imminent demise. Wrong! (Ignore the hallucinogenic movie reviews in the MFM at the time.)

..... ▷ Added to this, The Super Mario Bros. Movie garnered over $1.35bn in worldwide box takings since its release in April, currently by far the top movie of the year (though Mattel's Barbie could well overtake it before long.) This drove sales of both Super Mario games as well as consoles but is also part of its five-year-old project to leverage its brand and intellectual property with movies (viz. Mattel, Hasbro etc.) and theme parks and snacks etc., to protect and smooth its earnings from hit-and-miss or even mega-hit-to-fading-star cycle of the video games business, both in its games and console hardware. (First quarter sales related to IP tripled to ¥31.8bn, driven by the massive success of the movie.)

📊 In the Markets

Start with the Letter A: US stocks closed little changed on Thursday, though the S&P 500 did dip lower for a third straight day, as Wall Street assessed the latest corporate earnings against a backdrop of falling Treasury bond prices and rising yields🎓. The benchmark 10-year Treasury yield reached 4.198%, the highest since November, extending a rise that began the day before when the Treasury lifted its issuance target for the coming quarter to close the gap between government tax revenue and spending and strong ADP (private payrolls) data again surprised experts. But barely, despite being the subject of much commentary (ahem), the result of Fitch’s unexpected downgrade on Tuesday of Washington’s credit rating.

..... ▷ Anheuser-Busch InBev reported a 10.5% drop in US revenues in Q2, mainly due to a decline in sales of its Bud Light brand. The steep decline followed a marketing collaboration with Dylan Mulvaney, a transgender TikTok personality, which sparked a conservative backlash and called for a boycott. Despite this, overall revenues climbed 7.2% to $15.1 billion in a surprisingly resilient quarter as it passed through price increases (in contrast to Heineken.) BUD shares rose 3.8% to €53, although the price had previously fallen more than 10% due to the controversy. AB InBev, which also manufactures Budweiser, Stella Artois and Corona, maintained guidance for the year, revealing that 80% of surveyed consumers still had a favourable or neutral view towards Bud Light. However, rivals such as Modelo Especial (under Mexico's Grupo Modelo, but distributed in the US by Constellation Brands) and Molson Coors' Coors Light and Miller Lite have capitalised on the situation, with the former overtaking Bud Light as America's best-selling beer in June.

..... ▷ Airbnb recorded its most profitable second quarter on the back of higher nightly prices and a rebound in post-pandemic travel. The accommodation rental platform posted net earnings per share of $0.98 for the three months to the end of June, a 72% increase on the same period a year earlier and far ahead of analysts’ estimates of $0.78 on revenues, only marginally better than expected. ABNB raised its third-quarter guidance above Wall Street expectations, though shares were volatile in after-the-bell trading on 11% growth in "Nights and Experiences Booked" in the second quarter, which was slower than analysts had projected. The company once again explained to Wall Street’s highly-paid analysts that figures were against a strong comparison period the year before.

..... ▷ Apple now has OVER ONE BILLION paying subscribers for its digital services, contributing to a 2.3% rise in net profit to $19.9bn, and beating Wall Street's highly-paid analysts' estimates. Total revenues slipped a bit by 1% to a still enormous $82bn, a third straight fall though slightly ahead of forecasts, but within that, services revenue reached a record high of $21bn, up 8% from the previous year. As we've been saying, Apple services drive customer loyalty and engagement across its ecosystem of devices and platforms and include Apple Music, Apple TV+, Apple Arcade, Apple News, iCloud, Apple Pay, the immensely popular Apple high-yield Savings Account and the App Store in general. On the hardware side, sales of iPhones, Macs, and iPads were lower, while wearable sales rose 2.5%. Revenue in the greater China region grew by 7.9%, offsetting a 5.6% decline in the Americas. After challenges from supply chain disruptions and the macro environment, Apple's finance chief believes the worst is over.

..... ▷ Amazon.com reported strong Q2 sales growth and a quarterly profit of $6.7bn, nearly double the best guesses of Wall Street's highly-paid analysts. Earnings per share came in at 65 cents, compared to a loss of 20 cents the previous year. Faster and more cost-effective delivery to customers, along with a rebound in AWS, its cash-cow cloud-computing division, helped the positive results, and in after-hours trading, Amazon's shares surged 9%, adding over $120 billion to its market value. That's about half an Alibaba and more than either Inditex (Zara) or Fast Retailing (Uniqlo.) Amazon expects a boost from its Prime Day sales and strong consumer sales in the second half of 2023. In the all-important cloud space, Amazon Web Services saw a 12% increase in sales, a good sign that the slowdown had bottomed out. It was slower growth than rival offerings from Alphabet and Microsoft though those are off smaller bases.

Cage Fight, not a Knockout

That digital Zuck vs Musk cage fight may last longer than some had thought (or hoped for.) Meta's X/Twitter rival, Threads, is struggling to retain users after a much-hyped launch. Fresh Sensor Tower data estimates reveal engagement hitting new lows, raising questions over its ability to rival Twitter.

..... ▷ Since July 31, Threads' daily active user count dropped 82% to just eight million users per day, down from a peak of 44 million at launch. App usage has also declined, with daily average time spent falling to 2.9 minutes and users accessing the app only 2.6 times per day. Similarweb data mirrors the decline, with the user count dropping from 49 million to just over 11 million by July 29.

..... ▷ While Twitter struggles with its rebranding as X, Meta aims to capitalise on the chaos by enhancing Threads, its Twitter clone. Threads promises users an updated list of liked posts, automatic post translation, and a feed based solely on accounts followed, not TikTok-like AI-driven recommendations.

..... ▷ Despite potential challenges from regulators, Meta's proven success in maximising user engagement through (maybe dangerously) addictive algorithms suggests the potential to turn Threads into a billion-user app, following Facebook's growth pattern, continues.