👷 Europe’s Productivity Problem

Good morning Investor! “There’s no such thing as the goose that lays the golden egg forever.”

— Jim Simons

MARKET UPDATE

Shares of Novavax (NVAX) soared 98% on Friday on news of a $1.4 Billion Covid Shot Deal With Sanofi.

TODAY’S BIG HEADLINES

• Europe’s Productivity Problem

• Mettler-Toledo’s Instrument Sales Are Resilient

• Gaming is Suffering a Sizable Downturn

• Starlink Suffers Disruptions From Major Solar Storm

MACROECONOMICS

Europe’s Productivity Problem👷‍♂️

Chasing Shadows: Despite Europe’s historical standing as a global superpower, it’s been trailing America like a kid brother trying to keep up with his marathon-running sibling. Back in 2018, the Chief Economist of the Bank of England stated that the variable behind the UK economy’s lack of growth is productivity. Since then, we’ve had many instances where similar correlations have been made, but most recently the governor of Sweden’s central bank told the Financial Times that the productivity growth in the US has been much stronger, and went on to imply that European Policymakers need to find a solution to this.

Measuring Up: Labour productivity is a measure of how much work it takes your economy to produce what it produces. Take Germany and its auto sector for example. As a rule of thumb, you’d ideally see faster GDP growth than wage growth.

Numbers Don’t Lie: The data backs up both of these theories, as European productivity has increased only about 20% since 2000 while Sweden has been a star performer, growing by 35%. These figures are pitiful when compared to the US’s 60% growth since the year 2000, including a 10% rise in the number of hours worked. It’s like comparing a home-cooked meal to a five-star restaurant.

Unjustified Stigma: As is the case with most things, Europeans have been branded with the “lazy” tag, implying that they don’t want to work as hard as their American counterparts, which simply isn’t true. This is largely a result of policy. Europe is currently undergoing a green revolution, making drastic changes to various sectors of their economy in the battle against climate change, however they aren’t making it quite as easy for industrial companies as the likes of China and America. It’s like asking someone to run a race, but tying their shoelaces together.

Does Not Compute: Germany just recently shut down all of the country’s active nuclear reactors, which produce clean energy, only to then import their energy from France, a country which generates the vast majority of its energy from nuclear power. It’s like going on a diet and then ordering a double cheeseburger. This has led to rising energy costs which when combined with a lack of government subsidies and an awful lot of red tape, simply slows down the rate of change and thus the region continues to lag behind its peers. Talk about an uphill battle!

HEALTHCARE

Mettler-Toledo’s Instrument Sales Are Resilient🩺

Picks & Shovels: Mettler-Toledo (MTD), a global leader in precision instruments for the life sciences, industrial, and food retail industries, announced its first-quarter results on Thursday evening, beating expectations across the board like a surprise party that actually stays a surprise! This led to an incredible surge of 17% in the share price on Friday.

Money Talks: The company highlighted by Terry Smith, the famous British investor as one of his “best performers” of 2024, has lived up to the billing. Let’s go over what was reported:

• Revenue came in at $925.9 million which despite being flat year-over-year, still beat analyst estimates of $879.72 million.

• Net income was $177.5 million, down 5.8%, yet still higher than consensus estimates of $163.84 million.

• Diluted EPS was $8.24 per share, down from $8.47 in the prior year, but quite significantly above estimates of $7.64 per share. Meanwhile, on an adjusted basis, EPS actually increased 2% YoY. That’s quite an adjustment.

Gazing into the Crystal Ball: Management provided guidance for the second quarter, anticipating sales to decline by 4% in local currency while anticipating an Adjusted EPS of between $8.90 and $9.05, reflecting a decrease of 11% to 13%. It’s like a weather forecast predicting rain on your picnic day.

Regional Roadblocks: The company faced some significant challenges in the form of a slowdown in demand within the Asian market, as well as currency headwinds. Akin to trying to sail a boat with holes in the sail. The company experienced sales growth of 8% in Europe, 3% in the Americas, while also seeing a decline of 12% in Asia/Rest of world.

GAMING HARDWARE & SOFTWARE

Gaming is Suffering a Sizable Downturn🎮

Game of Thrones: Despite some very successful gaming to streaming success stories recently such as the new record-breaking Fallout show on Amazon Prime as well as The Witcher on Netflix, gaming is actually suffering its biggest slowdown of the post-pandemic era. It’s like a rollercoaster that’s just hit the peak and is now hurtling down. We’re now on the other side of earnings season, so let’s dive into the treasure trove of what the gaming sector had to report.

Virtual Reality Check: Last week, we got earnings from the hugely popular Roblox (RBLX) who despite reporting revenue growth of 22% year-over-year, saw their share price capitulate and decline a colossal 21% after the company provided weak forward guidance, anticipating soft spending in-game. It’s like throwing a party and having half the guests leave early because the guacamole ran out.

Waiting for the Next Level: While we twiddle our thumbs waiting for the next adrenaline-pumping installment of the Grand Theft Auto series, it seems Take-Two Interactive (TTWO) is stuck in a traffic jam. They’ve reported two consecutive quarters of declining sales and are on the fast lane to a third. It’s like they’ve hit every red light on the way to GTA 6!

Console Wars: In the epic saga of console makers, Sony (SONY) and Microsoft (MSFT) are having a bit of a rough patch. Sony’s console sales forecast has taken a 4 million unit nosedive, while Xbox has tripped over its own power cord with a 31% hardware revenue decline of 31% this quarter, following a 30% belly flop the year before. The third player in this three-legged party, Nintendo (NTDOY) is trying to ‘switch’ things up with their upcoming Swtich 2 handset, set to be revealed before April 2025. Game studios better start thinking outside the Xbox to keep gamers interested. Club Penguin 2, anyone?

SCIENCE & TECHNOLOGY

Starlink Suffers Disruptions From Major Solar Storm🛰️

Solar Flare Scare: It seems that not everyone enjoyed the stunning sights of the Aurora Borealis around the world, caused by the largest geomagnetic storm in over two decades. Elon Musk’s satellite internet company Starlink has been left in the dark due to this increased solar activity. It’s a bit of a space weather hiccup for navigation systems, power grids, and satellite navigation.

Battle of the Bands: Starlink are the lead singer in the satellite internet space and owns around 60% of the roughly 7,500 satellites orbiting Earth, but it’s not a solo act. The space is actually far more competitive than you’d expect, with major competitors including Avanti Communications, Printscom and London-Based OneWeb, along with a host of others, it’s more like a cosmic Battle of the Bands. Who will be the next space superstar?

Sky-High Finances: Starlink’s finances are shooting for the stars, on track to hit $6.6 billion in revenue, an 80% increase on the prior year, and is even set to post its first free cash flow positive year according to a Quilty Space report. It’s like a rocket that’s finally reached orbit. The report estimates that Starlink has a total of 2.7 million subscribers as of the end of the first quarter, up from 2 million back in Q3 of 2023. The internet provider is also expected to bring in EBITDA of $3.8 billion after reaching EBITDA-Capex breakeven back in 2023, it’s safe to say they’re not just shooting for the moon, they’re planning to build a base there! Interestingly, roughly 57% of customers are based in the US.

MORE NEWS

Additional market-moving events🌎

What Recession?: UK has posted its fastest growth in two year, reporting GDP growth in the first quarter of 0.6%. (BBC)

Cardstop: Gamestop are attempting to cash in on the resurgent card collecting craze and will now be buying and selling rare Pokemon cards. (The Verge)

Gold Mania: Gold bars are selling faster than a viral new product in convenience stores and even vending machines in South Korea. (CNBC)

Let There Be Light: CRISPR gene editing is being used to improve a rare form of blindness in a clinical trial run from the Oregon Health & Science University, resulting in an enhancement of the vision of 79% of participants. (MNT)

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