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Monday, 31 October 2022

[New post] The Lure of Azure

Site logo image vestact posted: " Market Scorecard US markets rose on Friday, thanks to a strong rally in the technology sector. Despite some disappointments, overall optimism about corporate earnings helped the S&P 500 and the Nasdaq to register another week of gains. Octo" Vestact - Money with a dash of funny

The Lure of Azure

vestact

Oct 31

Market Scorecard


US markets rose on Friday, thanks to a strong rally in the technology sector. Despite some disappointments, overall optimism about corporate earnings helped the S&P 500 and the Nasdaq to register another week of gains.

October is thought of as a month of bad luck in the stock market, since the crash of 1929 and Black Monday in 1987 both took place then. This year, however, the Dow Jones Industrial Average is on track to finish October up more than 14%, which would be its best monthly performance since January 1976.

In company news, our largest holding, Apple rose 7.6% after reporting pleasing earnings and demonstrating that demand for its premium gadgets remained high. Elsewhere, US oil super-major ExxonMobil reported record-breaking numbers with quarterly profits of nearly $20 billion.

On Friday, the JSE All-share closed down 1.10%, but the S&P 500 rose 2.46%, and the Nasdaq rallied 2.87%.

Our 10c Worth


Michael's Musings

Microsoft was one of the many tech companies to release results last week. They reported a very strong set of numbers, beating analyst expectations for both revenue and profits. The stock market is more concerned with the future than the past though. Weak guidance, due partly to a strong US Dollar and weak PC sales, meant that the stock dropped 6% after the results.

Microsoft's cloud computing division, Azure, enjoyed strong growth of 35%. As the base gets bigger, the division's expansion is starting to slow. It had growth of 40% in the previous quarter and 50% a year ago. If the US Dollar hadn't been so strong, it would have grown by 42%. The forecast is for even slower growth in the coming quarters. Analysts had hoped that Microsoft would have been able to keep ratcheting up at that higher rate for longer.

We like Microsoft because they have many products that are core to how modern businesses operate. We like that diversity. Don't forget that they also own LinkedIn - that business grew 17% last year. MS Dynamics 365 grew 22%, MS Office grew 7%, search and news advertising was up 16%, devices sold were up 2% and Xbox-linked revenue was up 3%.

This is a quality company, with very healthy profit margins and a trusted brand. The share price has been severely impacted by the current market turmoil. The important thing is to be invested in companies that can survive the market upheaval and come back stronger when the headwind becomes a tailwind. Microsoft is one of those companies.

One Thing, From Paul

The financial services sector is typically at least 20% of the GDP for a well-developed country. Banks perform a vital service in the modern economy, directing money for investment purposes and facilitating global trade and consumer spending.

We have invested in banks over the years, with mixed success. We owned shares in JP Morgan and prior to that Wells Fargo, BlackRock, Goldman Sachs, General Electric (mostly a bank), and Capital One.

After the global financial crisis in 2008-09 the regulations became much more stringent on bank leverage, which has curbed returns for investors.

Swiss banking giant Credit Suisse just announced that it will split itself into four pieces, two of which will be sold off, after decades of poor performance and investment banking scandals. One of the pieces will revive the First Boston name, which was the name of a US bank that it bought out some years ago.

In a blog post I read, by Marc Rubenstein, between 2016 and 2021, the investment banking division of Credit Suisse made a cumulative pre-tax profit of 1.36 billion Swiss Francs on revenues of 51.1 billion. Employees took out 23.5 billion Swiss Francs of compensation along the way. Shareholders were left with a return on equity averaging just 3%. Shareholders took all the risk, and employees received all the upside.

All in all, this is a fun sector to track, but probably best avoided by investors. JP Morgan, the best company in the sector, trades at a price-to-earnings ratio of just 10 times.


Byron's Beats

It is not just big US tech that is investing in South African data centres. NTT, the parent company of Dimension Data has opened a 6 000 square metre centre in Johannesburg. According to BusinessTech the facility will be the first of a large expansion into the African continent.

Naturally the data centre has uninterruptible power supply with a generator backup and a highly sophisticated cooling system that recycles the chilled water.

Dimension Data and their subsidiary Internet Solutions were one of the original hosting solutions in this country. I remember when our entire database used to be stored on a physical computer server which we called "the box", in their Bryanston facility. After many years we moved our hosted platform over to AWS. It certainly makes sense for NTT to improve their offering in Johannesburg and the rest of the continent.


Bright's Banter

Friday was a big day for Taylor Swift as she became Spotify's most-streamed artist in a single day thanks to "Midnights", her latest studio offering. With rave reviews, reports of streaming service outages, and two Spotify records in its wake, this album is clearly dominating the musical landscape.

This album's lead single "Anti-hero" is yet to drop below 10 million daily listens and other tracks like "Lavender Haze" and "Snow on the Beach" nearly doubled the streaming stats of all her competitors. It's fair to say that Taylor Swift's latest release is fire. Very few artists can say they crashed the streaming service apps in their lifetime.

Linkfest, Lap It Up


Paypal's Venmo is being added as a payment option on Amazon. The online retail giant wants extra payment solutions to keep its customers happy - Amazon offers Venmo this holiday season.

Steve Jobs predicted the rise of podcasts. Imagine if he was still around to be interviewed? - Joe Rogan and Steve Jobs Have a 20-Minute Chat in AI-Powered Podcast.

Signing Off


Asian markets started well this morning, up for the fourth time in five days. Tokyo is still up firmly, but bourses in Hong Kong and mainland China have since run out of steam.

Oil will close October higher, its first monthly advance since May, thanks to output cuts by the OPEC+ alliance. This is bad news for the people on the street. The ones in cars, that is.

This week we'll see more third-quarter earnings reports from companies like Airbnb, BP, Estee Lauder, Ferrari, Moderna, Qualcomm, SoftBank, Sony, Starbucks, PayPal and Uber.

November starts tomorrow, which means that the festive season is drawing near. Let's stay focused and finish the year in style.

Sent to you by Team Vestact.

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