M&A talk about Microsoft and Netflix, Tesla still falling and Nike steps up

“A calmer close to Wall Street last night had the soothing effect of stabilising markets across Europe following recent weakness, with all the major indices managing to sneak ahead on Wednesday,” says AJ Bell investment director Russ Mould.

“The FTSE 100 nudged up 0.2% to 7,386, led by JD Sports rising off the back of better-than-expected numbers from trainers group Nike. Frasers also hitched a ride with investors seemingly hopeful that a good showing from Nike means athleisure spending is more resilient than the market previously thought.

“Bunzl failed to muster any enthusiasm from investors despite reporting ‘very strong growth’. While it has shown to be resilient during inflationary times, markets no doubt don’t like the news that next year’s earnings per share will be moderately lower than 2022’s because of higher interest and tax rates.

“Speculation around Tremor putting itself up for sale brought a bit of excitement to the small cap world. Reports suggest the advertising technology company is under pressure from big shareholders over its poor share price performance, down more than 40% year-to-date. The shares had more than quadrupled in value between 2020 and 2021 but a big chunk of those gains has been lost this year.”

Microsoft/Netflix

“Among the big stocks to have troubled investors this year are Microsoft, which is down 28%, and Netflix, which is trading 52% lower versus the start of 2022. There is now speculation that the two of them might like to get into bed together.

“Netflix wants to offer a comprehensive streaming service for games while Microsoft has the content and wants to reach a bigger audience. Strategically the two companies could be a good fit but culturally they may be worlds apart.

“The chatter about a tie-up looks more like fantasy M&A rather than a credible story and one can imagine that it would be a tough sell to convince many Microsoft shareholders that they should own a content platform that by its own admission is finding it harder to sustain previously strong growth levels.”

Tesla

“Tesla fell another 8% last night as investors continued to worry about weaker sales from China and Elon Musk being distracted by Twitter.

“The suggestion that it could take some time to find a new chief executive for the social media network means Musk could continue to have his time gobbled up by Twitter rather than getting back to his main day job of running the electric vehicle business.

“Tesla’s shares have fallen 48% in the past quarter, one of several mega cap stocks to have gone from winners in recent years to losers in investor portfolios during 2022.

“It’s got to the point where investors just want Musk to stop mucking about and put the interests of Tesla before his ego.”

Nike

“To take an adage from the sporting world – form is temporary, class is permanent. Nike may have had a tough time, but it remains the dominant player in what is, with Adidas trailing a little behind, a duopoly in the sportswear and trainers market.

“The best quarterly revenue growth in a decade is testament to the brand’s inherent strengths. It may have had to ease up on pricing to clear some excess inventory but Nike’s ability to appeal across class and age demographics means wealthier clientele, less impacted by the cost-of-living crisis, have also helped to drive sales.

“The improvement in the supply chain is crucial as Nike looks to get its products to the right customers at the right time and this should enable it to better manage its inventories and increase its margins.

“If it can get these basics right then Nike has already proved it is very good at all the other stuff like product innovation, brand-building and marketing, which give it huge competitive advantages. These should enable it to benefit from supportive trends around health and fitness, the casualisation of fashion and the growth in athleisure.

“There remain obstacles to clear in the short term, particularly in the important Chinese market where the fate of the country’s big reopening hangs in the balance thanks to mounting covid infections.

“However, Nike looks like it is stepping up to the plate and its continued shift towards selling more direct-to-consumer should give it greater control over its own destiny.”

These articles are for information purposes only and are not a personal recommendation or advice.