Today on this last day of 2023, we have a special version of the Market Pulse, recapping our favourite stories of the year. We started the year producing this weekly roundup for just a few hundred people, but it has now grown into something much larger, and is a core part of the wider Sidekick offering.

2024 is set to be an exciting year, as we are now rolling out access to the full Sidekick product, starting with our Founding Members. To unlock access to Founding Membership, simply download the Sidekick app, and start earning points.

So on to our favourite stories of the year. We've picked just five from across the last 50 Market Pulses, and we hope you (re)enjoy them!

Evolution on repeat: Reshaping the economics of music streaming (11th Sep 2023)
Fast and silent: The future of luxury sports cars (24th Jul 2023)
How to improve your tennis return (10th Jul 2023)
Tech billionaires bet on the next big thing. It’s not AI (24th Apr 2023)
GPT-based stock picking (30th Nov 2023)‍

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It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

Stories were accurate at the time of their original publishing, but data quoted may now be out of date.

1) Evolution on repeat: Reshaping the economics of music streaming

Originally published: 11th September 2023

Historically, the music industry has been an early candidate for technological disruption and as a result had to learn to adapt to stay ahead. The advent of the mp3 format led to a rise in illegal music downloads through sites like Limewire. This put music industry revenues, and artist livelihoods, under great pressure. But then, during the mid to late 2000s, thanks to the launch of streaming services like Spotify and Apple Music, the fortunes of the music industry started changing.

The industry did so well that large asset managers like Blackstone, KKR and Blackrock invested billions into music catalogues where royalty payments from copyrights offer a predictable, recurring and diversified source of return. Streaming helped turn music into an asset class[1].

Streaming services, like Spotify, have a relatively simple business model. They charge a monthly subscription and then distribute about two thirds of that revenue to the owners of the music rights based on their share of listening. But this relatively simple revenue sharing structure can be easily manipulated[2].

In many current streaming agreements, every audio stream is counted equally as long as someone, or yes, even an algorithm, listens to it for at least 30 seconds. This is like saying a 30 second Youtube video of a dog barking at a bus is the same as an episode of Ted Lasso. JP Morgan analysts estimate that if you uploaded a 30 second recording of your washing machine and set your PC to listen to it on repeat, you could make up to $1,200 of royalties a month! [3]

This very real problem has arguably been made even worse by the advent of AI generated music. In our ideal world, royalties should be paid to real artists for real music, not for recordings of washing machines or fake AI music generated by apps like Boomy. [In September] we saw a deal that could take us a step in the right direction.

Universal Music struck a deal with Deezer, a French streaming service, that could reshape music streaming economics. The deal will direct more royalty payments towards professional musicians and away from noise and fake AI streams. The deal doubles royalty payments to artists who generate at least 1,000 listens a month. On top of that, they double royalty payments again if a streaming user searches for a specific artist like Taylor Swift.

Deezer is relatively small in the bigger picture and the larger streaming platforms, like Spotify and Apple Music, have not yet committed to any changes to how royalty payments are calculated. If they do, it could have significant implications for the music business and potentially also result in artists taking a bigger share of the revenue pie.

2) Fast and silent: The future of luxury sports cars

Originally published: 24th July 2023

There is a constant debate among investors about whether luxury cars should classify as autos or luxury goods. Put them in the former, and the market is but a small fraction of global auto sales where profits are thin, and valuation multiples are low. Put them in the latter, and they make up about half of the total global luxury market [4].

The spin-off of luxury car brands such as Ferrari, Aston Martin, and Porsche AG from their mass-market conglomerates has increased investor interest in the value of these assets. This interest is due in part to the immense success of Ferrari since its IPO in 2015 [5].

But no matter how differentiated luxury cars are from their mass-market equivalents, they must overcome electrification's rapid and irrevocable challenge. The lingering question is whether this challenge will be a threat or an opportunity.

Luxury sports cars have built their allure on cutting-edge, internal combustion engine technology. Electrification has thrown that into disarray. Consumers often associate higher power with higher price tags, but with the rise of electric motors, achieving incredible acceleration has become more accessible, making it easier and cheaper to build fast and desirable cars. Interestingly, some of the best-performing EVs are not manufactured in Europe, where most luxury brands are based.

Weirdly enough, the paradigm shift could prove to be an opportunity more than a threat for luxury automakers. Consumer stubbornness and nostalgia are big drivers of demand for legacy luxury car models. Therefore, technological changes are sometimes met with resistance, creating a distinct customer base. Luxury brands like Ferrari can leverage this loyalty by producing hybrids and costly traditional models at the same time. The strong brand loyalty of clients who prefer traditional features gives existing luxury car manufacturers immense pricing power and a key advantage over new entrants.

3) How to improve your tennis return

Originally published: 10th July 2023

The hottest show in town [was once again] in full swing [in July] [6]. But, for those of us who don’t own a debenture, attending the Wimbledon tennis tournament requires either luck in a long-odds ticket ballot or queuing for hours – if not days [7].

Debentures are loans raised by sports venues, often from loyal fans. While the name suggests a traditional financial instrument (the FCA regulates it), debentures primarily offer buyers access to events rather than cash returns. Buyers pay a one-time fee and receive complimentary tickets. At the same time, the funds raised typically go towards improving or maintaining the venue and its facilities.

Despite the substantial upfront cost, there are rewarding opportunities available. For instance, the 2021-2025 Centre Court Debenture Series provides yearly access to prime seats near the Royal Box with an initial price of £80,000 for a period of five years. It means that, on average, debenture holders pay £1,230 per day for the 13-day championships.

The advantage is the ability to sell tickets for days one cannot attend or sell the debenture itself. In the current inflationary environment, this can yield profitable returns. Currently, quarter-final tickets on Centre Court start at £3,250 [8], and the most recent debenture transaction in March went for £115,000 [9]. That's an impressive return.

4) Tech billionaires bet on the next big thing. It’s not AI

Originally published: 24th April 2023

Nuclear fusion is the process that powers the stars. It offers the potential of near limitless clean energy. Humans have been trying to replicate the process in labs since the 1950s but, until recently, have been unable to achieve net gain. Net gain is where you produce more energy than is required to kick off the fusion process.

In December 2022, the National Ignition Facility in the US had a breakthrough. By using the most powerful laser in the world, scientists delivered more energy than the entire U.S. power grid for a brief instant[10]. This ignited a fusion reaction and helped them achieve their goal, net energy gain.

Since 2021, private companies have been pouring billions of dollars into fusion research. More than 30 companies have raised more than $5bn, all in an effort to commercialise fusion reactors [11]. Sam Altman, the CEO of OpenAI, has invested $375mn into Helion, a nuclear fusion startup. But Sam Altman is not the only tech founder to invest in the area. Tech billionaires including Jeff Bezos from Amazon, Bill Gates from Microsoft and Marc Benioff from Salesforce are all betting that fusion reactors are within reach[12].

We live in an era where technological breakthroughs in one area are enabling breakthroughs in other areas. As an example, advanced AI could materially speed up the development of new medicines. In nuclear fusion research, increases in computational power and advances in artificial intelligence are enabling breakthroughs in materials science.

There has been some exciting progress but experts say we are likely many years, if not decades, away from having nuclear fusion reactors that provide electricity to the grid [13]. What the experts agree on is that it is only a matter of time until we can harness the power of the stars to provide abundant clean energy to the world.

5) GPT-based stock picking

Originally published: 30th November 2023

Since the public release of ChatGPT, a lingering question has captured the attention of both professional investors and individuals alike: Can it effectively pick stocks?

Matthias Pelster and Joel Val[14] from Duisburg–Essen University ran an experiment to study whether ChatGPT-4, with access to the Internet, is able to provide valuable investment advice and evaluate financial information in a timely manner.

They conducted the live experiment during the 2023-Q2 earnings announcement period to examine ChatGPT's ability to reliably assess earnings surprises and other news events. Earnings announcements were chosen as they represented significant corporate events, offering information-rich scenarios with complexities often challenging for investors.

Employing a live experiment was crucial to prevent biased outcomes, particularly since analysing ChatGPT's historical performance using past data might have inadvertently incorporated future information, potentially skewing results.

The findings indicated a positive correlation between ChatGPT's earnings forecasts and actual earnings, even when accounting for consensus forecasts. Additionally, the "attractiveness" ratings[14] of the stocks aligned positively with future stock returns.

The authors thus found that ChatGPT could be a handy tool for investors, helping with stock picks before earnings announcements or gauging overall stock appeal. Yet, the lingering question is, how long can this “edge” last? Stay tuned as we eagerly await next quarter's experiment results!

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Notices

Please remember, investing should be viewed as longer term. Your capital is at risk — the value of investments can go up and down, and you may get back less than you put in.

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