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Today in the Market (8/1/2022)

Good Evening. On August’s rough opening trading day, U.S. stocks declined as Wall Street battled to maintain July’s pace.

The Dow Jones dipped 0.14%, while the S&P 500 fell by 0.28%. The Nasdaq Composite fell by about 0.18%.

THE EARNINGS DON'T STOP THERE

Activision Blizzard (ATVI), the company behind “Call of Duty,” released its Q2 earnings report after the bell on Monday, topping analysts’ revenue projections but missing them on the bottom line as the industry struggles to recover from pandemic-era highs.

The most significant figures from the release compared to what Wall Street was expecting from the gaming juggernaut, as compiled by Bloomberg, are shown below.

  • Bookings: $1.64 billion vs $1.59 billion expected
    • Bookings” measure overall revenue, but subtract deferred sales from certain online purchases.
  • Earnings per share: $0.47 vs $0.48 expected

After experiencing an enormous expansion during the epidemic, the gaming sector is currently suffering from a severe hangover. In their most recent financial reports, Microsoft (MSFT) and Sony (SONY) both noted slowing software sales and user engagement.

However, Microsoft is also awaiting word on the viability of its proposed acquisition of Activision Blizzard. The Federal Trade Commission is still reviewing the $68.7 billion acquisition, despite Microsoft’s assurances that it will be completed by the end of the current fiscal year in 2023.

THE COMBO

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A trial regarding the $2.2 billion merger of Penguin Random House and Simon & Schuster has started today. The United States Department of Justice has filed a lawsuit to stop it on antitrust grounds, claiming that the agreement will harm authors by decreasing their negotiating leverage for advances of more than $250,000 and increase book costs for consumers. 

The publishing industry is more exclusive than you think. 90% of the market for expected best-seller novels is currently dominated by five publishers. However, if Penguin Random House and Simon & Schuster merged, that number would drop to four, with the new company taking the top spot.

  • According to NPD BookScan, the two publishers collectively accounted for 49% of the top 100 best-selling print books in 2017.

On the other hand, the publishers urge you to imagine all the “synergies” that would be released if you combined Penguin Random House’s experience in getting books on shelves with Simon & Schuster’s top-tier authors. They dispute the government’s claims that their merger will lessen competition and contend that there are far more publishers than just the “Big Five,” citing Amazon and Disney as two such significant ones.

Why it’s important? A $2.2 billion merger in the unglamorous field of book publishing may not initially appear to warrant the government’s antitrust ax. However, Biden has made opposing corporate consolidation a key component of his economic strategy. He claims that mergers could affect employees, as well as consumers. 

THE WEEK AHEAD

Earnings Are not Stopping: 148 S&P firms, including Activision Blizzard, Tesla, Caterpillar, Uber, DraftKings, CVS, eBay, and Alibaba, will release their Q2 financial results. Reports for the current earnings season have not been as bad as anticipated.

Job Report: Last week, Fed Chair Jerome Powell stated that the data from the economy would determine the Fed’s next interest rate decision in September. The July jobs report is a significant data point that will be released on Friday. Despite a slowing economy, experts anticipate another robust month of job increases and a continuing of low unemployment rate.

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