2021/2022 Edition

January 2022

Microsoft buys Activision Blizzard for 68 billion dollars

The biggest buyback of the videogame industry has been announced on Tuesday January 16th, by the tech-giant Microsoft; after the March 2022 acquisition of the Bethesda studios for 8.1 billion dollars, and of the Mojang studios in 2014 for 2.5 billion dollars, the American company affirms it will to be one of the main players in the videogame market.

​Born out of the fusion of two studios by the same name in 2007, Activision-Blizzard is at the head of famous licenses such as Call of Duty or World of Warcraft. During 2021’s fourth trimester, the company obtained very encouraging results, with a sales turnover which increased more than 10%. However, the company's share price fell sharply over the same period (-13%), with complaints of sexual harassment concerning close collaborators of the CEO, Robert Kotick, and announcements of postponements for certain flagship titles such as Overwatch 2 and Diablo 4.

 

The announcement of the buyback appears as beneficial for both parties, and the investors shared this sentiment : the studio’s share grew by 25% on January 18th. Microsoft is now in third place in terms of turnover, behind Tencent and Sony, owning 35 development studios with its subsidiary Xbox Game Studios.

One year after new generation consoles have aired, the news comes along as a war declaration for its japanese competitor and foreshadows the loss of exclusivities and exploitation rights for some licenses. This was felt on the share price of the Japanese firm, which fell 13% on the day of the announcement.

The future therefore seems radious for the american developer, which profited off the craze to announced the launch of a new license. Sony seems to be the loser here, and might have to double its efforts to continue to satisfy a demand which is growing in sophistication. Indeed, even though the Japanese videogame company is still a little ahead of Microsoft, the latter's aggressive policy could cause Sony to lose market shares; the Xbox Game Pass, for example, offers a subscription giving access to a vast catalog and should become more important in the years to come.

Facebook gives up on its crypto-currency project and sells it to Silvergate Bank

The cryptocurency project Diem from Meta, Facebook’s mother company, was abandoned and then bought back by Silvergate Bank, a Californian bank. This project, previously named Libra, was initially launched in 2019 by Facebook, with the support of many companies such as Spotify of Uber. Mark Zuckerberg’s ambition was to revolutionize global financial services by creating a stable digital currency.

​This cryptocurrency was initially similar to a stablecoin, a digital currency backed by a traditional currency. The aim of this project was to try to launch a set of stablecoins (indexed on the dollar, the euro, the pound, etc), and a multicurrency-currency.

​However, after withdrawing its application for a payment system license from FINMA and leaving its Geneva headquarters for the United States in May 2021, the Diem Association, which is responsible for leading the construction of the blockchain-based payment system, decided to focus solely on the American market. Eventually, the project was reduced to a stablecoin dollar, the Diem USD. From then on, a partnership with Silvergate Bank, a bank specializing in crypto-assets, was concluded so that the non-fiat currency would be exclusively issued by the latter.

 

Sadly, the FED (The american central bank) did not authorize the emission of the Diem to Silvergate Bank, according to Bloomberg, “the FED was not comfortable with the project”. Let’s recall that, since its launch, the Libra project had prompted worries from the central banks, the regulators and the politician leaders, related to its effect on the stability of the financial system, and the confidentiality of the data. Moreover, many prestigious partners such as Visa or Mastercard abandoned the project as soon as Fall 2019.

 

Because of these regulatory pressures, the Diem association was looking to sell the entirety of its assets in order to “restore the capital” of its members that had invested in the crypto-currency, and transfer its intellectual property rights, mentions Bloomberg. Meta was then looking for a buyer to take back its private currency project, particularly everything linked to patents and intellectual property. Its partner bank, Silvergate, took back the project for 200 million dollars, according to the Wall Street Journal.

CMA CGM in the race to the « last kilometer »

The announcement made on Monday, January 31, 2022, that the French shipping company CMA CGM, the largest French shipping company and fifth largest in the world, would acquire 51% of COLIS PRIVÉ’s capital (a company specializing in parcel delivery to individuals), which may seem surprising. Such a transaction, worth 291 million euros, would be made with HOPPS GROUP (a French holding company specialized in postal parcels based in Aix-en-Provence), which owns COLIS PRIVÉ.

 

Indeed, COLIS PRIVÉ was supposed to merge with DEE TECH in November 2021, in order to set up a SPAC on the Paris stock exchange to create a major player in e-commerce logistics in Europe, but negotiations failed, "in the absence of an agreement on the terms and conditions for the implementation of a joint industrial project", the delivery company said at the time. CMA CGM will buy 51% of COLIS PRIVÉ from the current owner, HOPPS GROUP (which will keep 39%) and AMAZON will own the remaining 10%.

 

COLIS PRIVÉ is a company with 500 employees. It was created in 2012. Specializing in the delivery of e-commerce packages to individuals, it works with 200 e-commerce players, including NESPRESSO, H&M, UNIQLO, VEEPEE, ALIBABA and AMAZON - the latter accounting for about a third of its revenue. Growing strongly, in 2020 the company achieved a turnover of €234 million, which is 46% higher than in 2019.

 

In 2021, it delivered 70 million parcels for revenues of €270 million, up 15% in 2020 and 69% on 2019. Its EBITDA is €27 million, with an average annual revenue growth rate of 21% over the 2012- 2020 period. "COLIS PRIVÉ is positioning itself as a major competitor to COLISSIMO (La Poste Group), which holds just over 50% of the French market with 505 million packages delivered to individuals in 2021, alongside UPS or DHL, among others." With a network of nearly 110 regional agencies, COLIS PRIVÉ has also expanded into Belgium, Luxembourg and Morocco and will soon launch its activities in the Netherlands.

 

Through this acquisition, CEVA Logistics, a Swiss-listed logistics subsidiary (which manages 9 million locations), which was acquired in 2019 by CMA CGM, will strengthen its e-commerce service offering, particularly in last-kilometer delivery. CEVA Logistics very recently (December 2021) acquired INGRAM Micro's supply chain operations (Commerce and Lifecycle Services subsidiary) in a deal valued at $3 billion. COLIS PRIVÉ will bring to INGRAM Micro a digital platform in SaaS (Software as a Service) mode dedicated to e-commerce, which allows the connection of customers and suppliers, with an ultimate delivery operation.

This operation calls for three main remarks. First, the diversification of the activities of shipowners: CMA CGM has recently invested in non-maritime services, like its competitors in container transport; for example, MAERSK, CMA CGM's main maritime supplier, has announced a €3.14 billion purchase to buy LF Logistics in Hong Kong, while MSC (Mediterranean Shipping Company) is in talks to buy the African logistics division of BOLLORÉ for €5.7 billion Secondly, the profitability of the sector: CMA CGM's investments are correlated with increased revenues, as the epidemic has led to high sea freight rates and an increase in vessel capacity and therefore revenues. Finally, the importance for a transport company to position itself in the e-commerce market, as the last mile is changing. We should also note the growing importance of CMA CGM in Marseille and the PACA region.

The Nasdaq fall and the internet bubble threat

Are we foreseeing a basic return of financial assets? Currently, the indicator of technological values has only weakly diminished. However, the announcement of the return of inflation and the rise of the interest rates can be synonymous with a bearish market for some investors.

 

A weak fall, for now…

According to Jason Goepfert, the research director at Sundial Capital Research, approximately four societies out of ten in the Nasdaq composite index have seen their market value divided by two compared to their highest value two months ago. This crash echoed the dot-com bubble in the year 2000. At this time, the American indicator of technological values  fell by 78% in two and a half years.

 

We can see that currently, the Nasdaq fell by 20% during the last two months. This can be explained by the fact that big capitalizations such as Apple and Amazon for example, aren’t falling. As it is often the case with such indicators, the weight of the capitalization of a company is important. The higher the capitalization, the higher the company’s weight in the performances of the indicator.

 

However, in order for 40% of listed companies to lose 50% of their value, their contribution to the indicator has to be small, which implies that the company is moderately sized.

Overvalued assets as a consequence of an accomodating policy

​Companies listed on Nasdaq are directly involved in innovation and technological research. They need the world of finance to enable them to finance their creations, develop and attempt to revolutionize their sector. This is why they are directly dependent on the rates at which they can borrow and get funding. We can see, for example, that since 2008, the FED has maintained an aggressive quantitative easing and low nominal rates.

 

​As a result, the market for technology stocks soared as investors were optimistic about new technologies and virtually unlimited financing opportunities. According to the law of supply and demand, as there were more buyers than sellers, prices soared. This led to an overvaluation of some assets, their price deviated from their fundamental value. For example, Tesla, valued at $1,000 billion in October 2021, will have achieved a turnover of $53.8 billion in 2021, compared to the Volkswagen group, valued at $108 billion and having achieved $205.6 billion in turnover in 2020. We can see that there has been a surge in demand, no longer taking into account the fundamentals.

 

The FED has planned to raise rates, so Jerome Powell, on January 26, announced that it would end quantitative easing as early as March. This earlier and faster rate hike has led investors to continue to dump their overvalued stocks. We can expect to see a convergence towards core business assets.