A New Video Game Mecca?

Plus: Walmart raises its digital game – and maybe also shopper’s ire. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

April 4, 2023

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TOGETHER WITH

Good morning.

Fly me to the moon — or rather several thousand miles past it and back home again without stopping for any giant steps on the way. In major news for space heads on Monday, NASA and the Canadian Space Agency announced the four-astronaut crew (three Yankees, one Canuck) for a 10-day mission late next year to complete a big lap around the big old rock in the sky.

It’s the first time in decades that humans will enter deep space, and the trip will be used to test-run critical ship functions ahead of a likely moon landing conducted with SpaceX in 2025. In the meantime, SpaceX co-founder and CEO Elon Musk is dealing with the very terrestrial problem of figuring out who does and does not deserve Twitter’s once-coveted blue checkmark. Hey Elon, this isn’t rocket science — even if your other company decidedly is.

Morning Brief

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Online shop till you drop.

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Video games are the new oil.

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Illumina loses its holy Grail.

E-commerce

Walmart Revamps Website and Shifts Profits Focus

(Photo Credit: Marques Tomas/Unsplash)

Walmart put a fresh coat of paint on its website, giving it the social media flair of a Pinterest board or Instagram feed designed to keep you scrolling and buying and scrolling and buying and scrolling and buying…

It’s the latest attempt from an e-commerce giant to adapt to spending trends and entice customers to buy things they weren’t necessarily looking for when they first signed on.

Just Browsing

The timing of Walmart’s digital renovation is perhaps no coincidence. The big box retailer finds itself in the curious position of facing both crisis and opportunity. On one hand, analysts at Morgan Stanley estimate that US households ripped through roughly 30% of their $2.7 trillion pandemic-garnered “excess savings” in 2022. For lower income families, that cushion has all but disappeared. Walmart boss Doug McMillon said on the company’s last earnings call that inflation-conscious shoppers will be “choiceful, discerning, thoughtful,” when it comes to their purchases.

Still, there may be an opportunity to sap up e-commerce market share. It’s no secret that Amazon is starting to feel more like an ad marketplace than a digital supermarket. According to The Washington Post, its e-commerce platform averages 8.5 sponsored — or “shill” — results on the first page of product search queries (that’s twice as many as Walmart and four times as Target, according to the WaPo). And now its online sales have declined in four of the past five quarters, suggesting vulnerability. To be fair, it’s also no secret why Amazon has quietly transformed its flagship service: ad margins are ridiculously high, and last year the company scored nearly $38 billion selling ad space, good for a solid third place behind Google and Meta.

With its website redesign, Walmart seems to be attempting to thread the needle of capitalizing on the enormous potential of online sales while also creating a user experience less alienating than Amazon’s:

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Walmart e-commerce Chief Tom Ward says the company is trying to “curate an experience when customers walk through our doors, whether they’re physical doors or digital” and provide “a more engaging way to browse.”

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CFO John Rainey recently said the business is looking to boost profits through ad sales, B2B services, and third-party marketplace sellers. While 55% of Walmart’s sales come through its grocery business, it has a small margin, but ad margins typically fall in the 70% to 80% range, Rainy said.

Anything You Can Do: Ironically, as Walmart ups its e-commerce game, Amazon is aggressively upping its brick-and-mortar efforts. CEO Andy Jassy told the Financial Times in February the company still plans to “go big” on in-person shopping despite barely making a dent in the space since its 2017 Whole Foods acquisition — though he blamed the stagnation on a lack of “normalcy” during the pandemic. Then again, these comments came before a very abnormal banking crisis, so what normalcy is he expecting?

– Griffin Kelly

Gaming

Saudi Arabia Pumps $38 billion Into Video Games

Saudi Arabia produces 11 million barrels of oil a day — and zero video games. But that ratio could soon change.

The country’s Public Investment Fund will funnel $38 billion into its e-sports subsidiary Savvy Gaming Group to turn the company into a studio that develops and publishes video games.

Saudi Arabia Has Entered The Game

The gaming market for years now has been bigger than the movie and music industries combined, so launching a studio may be a more obvious choice than it might appear as Saudi Arabia develops its economy in areas that don’t involve, say, unexpectedly having to slash the output of fossil fuels. Even so, Savvy pivoting to developing and publishing games is quite a bold move for the PIF seeing as Saudi Arabia hasn’t exactly been a gaming development mecca.

To be sure, if you’re going to spin up an entire industry from scratch, a $38 billion investment is not a bad starting point, but there’s no guarantee of success. Google, a company that you think would have the capital and nerdy caché necessary to pull off a foray into the gaming world, shut down its Stadia cloud gaming division earlier this year after making barely a dent in the industry. Savvy will of course have its own unique hurdles:

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Saudi Arabia is not home to many game developers, so Savvy will have to pump a lot of capital into talent acquisition.

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Savvy CEO Brian Ward hinted to Bloomberg that the company may adopt the strategy currently favored by Microsoft of hoovering up existing gaming studios. According to Bloomberg, Savvy has around $13 billion to splash on buying up a publisher — that’s $5.5 billion more than Microsoft spent on popular game-maker Bethesda in 2021.

When in Riyadh: Even if Savvy never produces a single profitable game, it may still serve its purpose. The PIF has previously invested billions in gaming companies around the world, and Ward told Bloomberg: “Part of our mandate is to help partners and other companies come to Saudi and choose Riyadh over some other place to establish a publishing business or distribution business to serve the region.” Usually, the point of a new venture isn’t to get crowded by competition, but it looks like Saudi will take what it can get.

– Isobel Asher Hamilton

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Biotech

FTC Overturns Approval of $7 Billion Illumina-Grail Deal

It’s probably too late to put the champagne back in the bottle.

Some six months after biotech giant Illumina gained regulatory approval for its $7 billion acquisition of cancer-screening company Grail, the Federal Trade Commission is stepping in to overturn the decision and putting the kibosh on the entire deal.

Flip-Flopped

Illumina and Grail are the Rachel and Ross of the biotech world, running a years-long on-again, off-again relationship. Grail began its life as a subsidiary of the gene-sequencing machine manufacturer, but was spun off in 2017 with the parent-company retaining 20% ownership. Its early-cancer detection tests quickly took off, and Grail promptly raised over $1 billion in a fundraising round backed by high-profile names like Bill Gates, Jeff Bezos, and Google Ventures. By September 2020, Illumina decided it wanted to bring Grail and its industry-leading technology back into the family home, and, after a dust-up with the FTC, an administrative law judge last September rejected the anticompetitive allegations and ruled Illumina could move forward with the reunion.

But the FTC quickly appealed the decision, and now Illumina may need to find a cure for whiplash. On Monday, the agency unanimously voted 4-0 to reverse the ruling and ordered Illumina to unwind the acquisition:

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Of chief concern for the FTC is that Grail’s multi-cancer detection blood tests are processed in gene-sequencing machines — the ones Illumina dominates. A merged company could therefore unfairly control the market and raise prices for consumers and competitors alike.

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“This is extremely concerning given the importance of swiftly developing effective and affordable tools to detect cancer early,” the FTC said in a statement accompanying the ruling.

EU, Too: Illumina has already said it will appeal the FTC’s decision in federal court, and that bringing Grail back into its fold would “expand the availability, affordability and profitability” of its cancer-screening tests. But its problems won’t end there. Illumina is also facing heat in the EU, where the European Commission is expected to soon fine the company up to 10% of its annual profits — or nearly half a billion dollars — for closing its acquisition in August before regulators could complete their review of the deal, and is expected to issue a similar divestment decision in the coming weeks. Maybe they should’ve never spun out the company in the first place.

– Brian Boyle

Extra Upside

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Smackdown: WWE is merging with UFC.

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Box office flop: Cineworld drops plans to sell businesses after failing to find a buyer.

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Just For Fun

The ‘Red’ Sea.

We should swap information.

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