Web 3.0
Crypto currencies are being adopted as fast as the internet and the Metaverse may bring Web 3.0
Succinct Summary: Global demand continues to be very strong pushing up inflation and creating supply chain challenges. Labor markets are fundamentally different after Covid. Cryptocurrency is being adopted as fast as the internet and the Metaverse may bring Web 3.0.
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Macro:
The global economy continues to re-open
“With almost all major markets lifting restrictions, we have seen a continued reopening of the global economy. This has meant strong GDP growth, improved labor markets, and a constructive environment for capital markets activity.” - Brookfield Asset Management (BAM) CEO Bruce Flatt
Demand is robust and supply chains are pressured
“Market conditions remain very robust and we are focused on maximizing returns and increasing our market share further. However, there are still significant challenges in the supply chain, including shortages in certain building materials and tightness in the labor market.” - D.R. Horton (DHI) CEO David Auld
“We are seeing the impact of global supply chain shortages in our merchant base, consumer confidence is weakened with the absence of stimulus payments and with the economy reopening, more people may be likely to do their holiday shopping in-store, as confidence in delivery logistics is depressed from last year” - PayPal (PYPL) CEO Dan Schulman
Inflation is global, broad-based, and not decelerating
“The cost inflation we are seeing is pretty much global. It's mainly -- it's a global phenomenon. From aluminum, chemicals, packaging and freight and everybody is impacted the same way.” - Agfa-Gevaert (AFGVF) CEO Pascal Juery
“We expect both our construction and lot costs will continue to increase -- In terms of lumber cost, that they are still rising. They rose further in our fiscal Q4. We've seen them rise further into October, so we do believe that we are seeing the peak of lumber cost. However, other costs are increasing as well, we're seeing costs really increasing across-the-board so even when we see perhaps have some relief from lumber as we move further into fiscal 2022, I think that will be offset by other cost increases.” - D.R. Horton (DHI) CFO Bill Wheat
“During the third quarter, we also experienced additional food cost inflation, namely in protein categories such as beef and pork. In addition, after seeing food cost inflation moderate in July, these costs accelerated again in August and September.”- OurUS Food (USFD) CFO Dirk Locascio
“...over the past year or so, we've talked about the increase in the price of content. You see the content, that because of just the competition for talent for everything that's involved in productions, content costs have gone up. Where we see it directly in our parks business is primarily through the hourly wage inflation“ - Walt Disney (DIS) CFO Christine McCarthy
For now, customers are accepting price increases
“We have already made 2 price increases. And so far, I can say these price increases have been accepted by our customers. We are now preparing for the third one, which will be even probably more significant than the other ones. I believe that there is overall an acceptance rate. I'm not saying that customers welcome that we increase prices, especially as the increase is starting to be very significant. You're talking double-digit increase here. But overall, this is well understood by the market.” - Agfa-Gevaert (AFGVF) CEO Pascal Juery
But inflation could start to pressure margins
“Right now, our short-term view is that we should be able to offset cost with price and maintain our margins that are around the level that we just reported in the fourth quarter. But, truly as we move through fiscal 2022, it will depend on the strength of the demand environment.” - D.R. Horton (DHI) CFO Bill Wheat
It’s tough to find workers
“...you've all read about the so-called labor shortages in the U.S., you've seen that unemployment is now at the lowest rate. that it's been since the pandemic started. You can't go anywhere in America without seeing help wanted and we're hiring signs at every retail store, at every fast food place. Wherever you turn, people are looking for quantity workers -- quality workers. And among other things, that means you have to pay them.” - AMC Entertainment (AMC) CEO Adam Aron
A record number of workers are voluntarily quitting jobs
“There are about 50% more job openings now than there were before the pandemic. However, millions of job seekers still have not come back to work. Further, we've seen record-high numbers of workers who voluntarily quit their jobs each month, finding new workers is critical for businesses to fill orders on time, expand production and grow.” - Ziprecruiter (ZIP) CEO Ian Siegel
There’s been a fundamental change in what people are looking for from work
“...what we're starting to accept is that there has been a fundamental change in what the job seekers are looking for from work, and that's evidenced not just by the reluctance of the unemployed to resume searching for work but also the great resection where people who were currently employed who now feel safe are now leaving their jobs at record levels. You're seeing an employer reaction to that, that is predictable with a record increase in wages, a record number of jobs that offer benefits, flexible schedules, and/or even remote work. So it seems like the job market is still in a state of flux as it reacts in response to what happened during COVID. And it's yet to settle down and play itself out.” - Ziprecruiter (ZIP) CEO Ian Siegel
International:
A challenging demand environment in Asia-Pacific
“Turning to Asia-Pacific, where COVID, unfortunately, continues to have a very significant impact on people's life. The situation in the region has continued to deteriorate throughout the year with more and more countries introducing increasingly drastic restrictions over the past 6 months, including government-mandated store closures. While at the end of Q2, still, more than 80% of our stores were open we had more than 50% of our shops being either completely closed or operating at a significantly reduced capacity for the most of the third quarter -- With the vaccination campaigns also slowly progressing in this part of the world, we have seen things improving somewhat lately.” - Adidas (ADDYY) CFO Ham Ohlmeyer
The key issue in china is not the whole real estate market but the residential condo market
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International bookings are bouncing back
“And as I mentioned before, bookings are now back at 80% of pre-crisis levels. And we see this year's summer travel season lasting into the fall and even into the winter. I sometimes refer to it as the endless summer.
And another upside results from the opening of the U.S., which is set for coming Monday, since the White House proclaimed the resumption of global entry, our U.S. bookings rose by more than 50%. On some routes, we saw bookings triple and even quadruple after a long-awaited reopening announcement. And new bookings on transatlantic routes are now also at around 80% of '19 levels. On some destinations, they're even above 2019.” Deutsche Lufthansa (DLAKF) CEO Carsten Spohr
“The power of travel is coming back. It’s coming back to our P&L. The trends are super encouraging. I’ll just give you one stat: 20% of the top markets around the world, from a cross-border perspective, are currently at 70% pre-pandemic volume. That’s a 30% upside. Then you take the U.S., U.K., and Canada, which are the largest markets where the borders only just opened this week, they’re at 50%. That’s all upside because people will go out and travel.” - Mastercard (MA) CEO Michael Miebach
2/3 of the global ad market is outside the US
“...concerning the state of global advertising market today, roughly 2/3 of the total advertising market is outside of North America. That's why we invest so heavily in key growth markets globally. In recent months, we've established a presence in markets like India, Italy, and the Nordics in Taiwan.” - The Trade Desk (TTD) CEO Jeff Green
Financials:
Crypto adoption pace mirrors internet adoption pace 25-30 years ago
“We never know exactly what's going to be happening in this quarter in crypto, but we are seeing really strong and accelerating pace of crypto adoption globally. In the letter, we actually shared some insights on the pace of this adoption and how it mirrors that of the Internet 25 to 30 years ago. And we looked at some third-party research which indicates that crypto users have doubled in the first half of this year, now over 200 million people in that growth is accelerating.” - Coinbase (COIN) CEO Brian Armstrong
AMC is now a crypto company
“AMC has also been speaking publicly in recent months about cryptocurrencies and NFTs. I can confirm today that we have been exploring with third parties over the past few months, both how we can accept cryptocurrency and if it is feasible for AMC to consider even launching our own cryptocurrency. We think we'll be able to launch the acceptance of Dogecoin in the first quarter of '22 -- And we are now figuring out how we can take Shiba Inu as a currency; that's the next one on our cryptocurrency hit parade -- I might add that we believe we have figured out ways where we do not have to hold cryptocurrency on our balance sheet. So we're not taking increased balance sheet risks with all this potential acceptance of cryptocurrency.” - AMC Entertainment (AMC) CEO Adam Aron
Banks and governments are investing in digital currencies
“Digital currencies have experienced significant growth in recent years and the market value for cryptocurrencies reached $2 trillion this year. We are seeing heavy investment from banks and governments in their digital currency space and there is a big market for solutions that solve the problem of trust with these new currencies.” - Mastercard (MA) President Cyber and Intelligence Ajay Bhalla
Consumer:
2021 is the best year in the ad industry
“This year, 2021, is by far and away the best year in our history -- The truth is, everyone’s doing well this year. There’s been this windfall of advertising spend that has really been unprecedented. I’ve never seen anything like it in my career.” - Bloomberg Media CEO Justin B Smith
Sports are moving to digital platforms
“For a long time, many TV industry insiders felt that live sports would be the tent pole that would prop up linear TV. But once again, consumers have voted, and they are switching to digital platforms to watch their favorite teams.” - The Trade Desk (TTD) CEO Jeff Green
“...this is another reason that Disney Bundle is proving highly appealing to consumers. Because live sports are a key element and a key differentiator of our Disney ecosystem. Some 90% of the most-watched telecast last year were sports, and they continue to perform extremely well. For example, the NHL's opening night games on ESPN last month marked the highest viewed season-opening doubleheader on record, with an increase of 54% over the 2019/2020 season-opening day letter, and we are particularly pleased with the NHL's Direct-to-Consumer performance on ESPN+ and Hulu” - Walt Disney (DIS) CEO Bob Chapek
People are spending on concessions at movie theaters
“The increase in our food and beverage revenue per patron is a reflection of guests’ enjoyment of the full theatrical experience at AMC. The significant outperformance compared to 2019 is mainly driven by an increase in the proportion of guests choosing to enjoy our industry-leading food and beverage offerings.” - AMC Entertainment (AMC) CFO Sean Goodman
Restaurant traffic is projected to fully recover in 2024
“Industry foot traffic at restaurants in the third quarter was largely in line with the prior quarter despite the surge in COVID cases due to Delta. This underscores our view that industry demand is resilient, and that demand for eating out or taking out at restaurants is largely past COVID. In fact, as seen by the chart on the right, Technomic is now calling for the entire industry to recover to pre-pandemic levels across restaurants and other customer types alike by 2024.” - US Food (USFD) CEO Pietro Satriano
Food delivery does need to be profitable to be sustainable
“This is an industry that is ultimately about how you're able to vary efficiency with customer experience. Like the easiest thing in the world is to spend money to have an amazing customer experience, but not unless -- that's not a long-term sustainable business -- when it comes to competition, like our focus is not on competition, our focus is on the customer and providing value for the customer, building an amazing service for the customer. But doing it in an efficient, profitable manner, which allows us to keep on investing for a very long time into bringing more customers in the platform.” - DoorDash (DASH) CEO of Wolfe Miki Kuusi
Department stores had down volumes in October
“Department stores, particularly those predominantly selling apparel, were down 7% to 10% in transaction volumes during the quarter. While those retailers selling electronics, appliances and our banking clients were up almost the same amount. Interestingly, those same retailers that were down in the quarter had October volumes that were up 15% over September.” - Intellicheck (IDN) CEO Bryan Lewis
Disney+ is two years old now with 118.1m subs
“Disney+, ESPN+, and Hulu continue to perform incredibly well with 118.1 million, 17.1 million, and 43.8 million subscribers, respectively, for a total of 179 million subscriptions. To put this growth in perspective, in the past fiscal year alone, we have grown the total number of subscriptions across our DTC portfolio by 48%, and Disney+ subs in particular by 60% -- We are enormously proud of all that we've accomplished with the service in just the first 2 years. It has exceeded our wildest expectations” - Walt Disney (DIS) CEO Bob Chapek
“...we now expect the Disney+ will reach its peak year of losses in fiscal 2022 instead of in fiscal 2021, as better-than-expected revenue and lower content expenses due to production delays contributed to lower-than-expected losses in 2021. As Bob mentioned, we are increasing our overall long-term content expense for Disney+, and we believe we are well-positioned to achieve the subscriber target of 230 million to 260 million by fiscal 2024 that we laid out at last year's Investor Day, and we also remain confident in our expectations that Disney+ will achieve profitability in fiscal 2024” - Walt Disney (DIS) CFO Christine McCarthy
Technology:
Web3/metaverse is the talk of the town
“In terms of Metaverse, I would say it's still early days, so there will be a lot of challenges. There's a lot of uncertainty. So, the future will be very exciting, but then the way through which it will be realized will probably take longer than people expected, and would probably need a number of iterations --.On Metaverse, I think this is actually a very exciting, but a little bit vague concept.” - Tencent (TCEHY) President Martin Lau
“...relatively small percentage of content in the world is truly real-time, truly 3D, and truly interactive. What we've said is the majority of content by the end of this decade will be. My definition of the metaverse is pretty straightforward. We've gone from Web 1 to Web 2. Web 1 peck stuff. I had Mosaic and a box. Web 2 enables an Uber, if you will. Satellite data, sell data, tracking information, nap on your phone, it's magic, the car shows up. Web 3 as these experiences become real-time, they become 3D, they become interactive, and often spatially aware.” - Unity Software (U) CEO John Riccitiello
Tencent argues that it’s to China’s benefit to have a robust video game market
“...at a talent level, some of the highest-profile, most successful individuals in the technology industry globally like an Elon Musk or a Mark Zuckerberg have spoken about their enjoyment of games when they were young and how did that set them on the path in the technology industry and the success that they enjoy today. So that's from a technology industry perspective. So anyway, we think that it's advantageous to society on multiple levels for there to be a thriving and robust game industry, assuming that the game industry can control adjacent issues, such as children playing games too much, which we believe the China game industry is now doing.” - Tencent (TCEHY) Chief Strategy Officer James Mitchell
17-24 is the fastest-growing age group on Roblox
“Interesting, a year ago, approximately 10% of our top 1,000 experiences had more over-13 players than under. Recently, that number has gone to 28%. So 28% of the top 1,000 experiences are now more 13+. For a long time, 13 to 16 was our fastest-growing age demographic, and I think you used the word adjacent. And that's exactly what it was. It was adjacent to our core 9 to 12 market, and it was our fastest-growing age cohort for quite a while. Today, the adjacency has continued -- Today, the adjacency has continued in right now, 17 to 24 is the fastest-growing. It's demographic on Roblox. So I think it's not any individual event or piece of content. I think it's a combination of everything that's going on and then certain of these things are finding big audiences and contributing to, again, this broadening in age demos.” - Roblox (RBLX) CFO Mike Guthrie
UID is the future of identity on the internet with many of the largest advertisers using UID2
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Industrials and Transport:
Chip shortages continue
“Since April, the automotive industry has been navigating the semiconductor chip shortage and pent-up consumer demand, resulting in depleted new and used inventory and vehicle price inflation reaching all-time highs. While some forecasts predicted a recovery in the second half of 2021, it appears that the chip shortage will last into 2022, potentially late into the year.” - CarGurus (CARG) CEO Jason Trevisan
Strong global demand for steel
“The current market, we're seeing very strong demand for our material in a ferrous sense as well as nonferrous in -- on a global basis, Europe, U.S.A., and the Middle East. So it's fairly strong now across the board.” - Sims (SMSMY) CEO Alistair Field
One-third of Adidas shipments are leaving Asia while delayed by more than 2 weeks
“...there are also several aspects impacting the supply side. Firstly, we have been experiencing significant delays in Asia due to the shortages of both vessels and containers. Right now, around 1/3 of our shipments are leaving Asia with significant delays in many cases, by more than two weeks. In addition, we continue to see significant delays at the destinations in the U.S. and Europe, as a result of productivity reductions at the ports, compounded by challenges in inland connections due to railway congestion and labor shortages. As a result, our end-to-end lead times are in many cases currently roughly twice as high than normal, reflecting a delay of more than a month. As mentioned before, these challenges have not only impacted our ability to ship and deliver our products on time, it has also led to a significant increase in logistics costs.” - Adidas (ADDYY) CFO Ham Ohlmeyer
Very few expectations that things will improve soon in supply chains
“Despite efforts by all participants to alleviate the disruptions to the global supply chain, there are no signs that conditions are improving. The main contributing factors are an increase in demand, lack of available vessels to satisfy such demand, and low levels of productivity in the ports and other land-based infrastructure. Additionally, as new vessel deliveries in 2022 are actually expected to be lower than in 2021, we do not expect any respite at least from the vessel supply front in the near term. In 2023, increased deliveries are forecasted, although there will be an offsetting effect from new environmental regulations that will likely tighten the effective supply of vessels due to the anticipated reductions in speed. Overall, we do not expect a dramatic difference, provided demand remains healthy.” - Danaos (DAC) CEO John Coustas
Energy:
Global decarbonization a multi-decade play
“We expect to see the impact of stimulus spending to increase the demand for recycled metal, whether it be infrastructure spending or retail consumption. Global decarbonization is a multi-decade issue. Steel-making and electricity generation are huge industries that must make significant contributions if we are to achieve a low-carbon world. Recycled metal will play an essential role in achieving that outcome for both of these industries.” - Sims (SMSMY) Chairman Geoffrey Brundson
Real Estate:
House prices probably not rising as they were
“We're not going to assume that prices will continue to increase as fast as they have. And so our base assumption will be there will be some moderation in sales prices -- The strong demand for a limited supply of homes has allowed us to continue to raise prices or lower the level of sales incentives in most of our communities. On a per square foot basis, our revenues were up 7% sequentially, while our stick-and-brick cost per square foot increased 7.5%, and our lot cost increased 2%.” - D.R. Horton (DHI) CFO Bill Wheat
Having to restrict sales pace because of inventory constraints and high demand
“...new home demand remains very strong and our local teams are continuing to restrict our sales order pace where necessary on a community-by-community basis based on the number of homes in inventory, construction times, production capacity, and lock position.” - D.R. Horton (DHI) CFO Bill Wheat
“Overall, housing fundamentals remain strong, with inventory levels at multi-decade lows for this time of year alongside continued heightened demand for single-family housing.” - Opendoor Technologies (OPEN) CFO Carrie A. Wheeler
“First, our single-family rental business continues to deliver solid operating performance with record-high occupancy and rent growth on new movements north of 20%, demand for SFR is clearly off the charts, and we expect it to remain this way for some time” - Tricon Residential (TCN) CEO Gary Berman