Sparks: Antitrust bust-ups; AI & geopolitics ⚡️

Welcome to Sparks, your weekly breakdown of some of the most interesting market news.Here’s what sparked our interest this week:

• The FTC and DOJ are keeping busy
• Microsoft makes a strategic investment in the UAE
• Apple dethroned as top smartphone maker

Antitrust-Hero 💪

The Biden administration is back with another round of monopoly bust-ups.

The Federal Trade Commission (FTC) could be gearing up to challenge a luxury fashion mega-merger — a rare occurrence in the fashion industry — between Tapestry and Capri Holdings. The FTC is expected to meet next week to discuss the case, but there’s still a chance the agency might not sue.

Tapestry is looking to establish an American luxury powerhouse that could rival European giants such as LVMH by merging with Capri, home to iconic brands like Versace and Michael Kors. However, investors are putting their money on the deal never going through. Capri's shares have dropped over 20% this year, while Tapestry's have risen more than 6% (normally, the target company's shares increase while the buyer's shares decrease).

The FTC's impending intervention underscores the Biden administration's commitment to muzzling monopolistic behaviour. FTC Chair Lina Khan and Justice Department antitrust chief Jonathan Kanter had both promised more aggressive antitrust enforcement when they took office in 2021, and they kept their word — a record number of antitrust actions were launched in 2022 and high-profile cases keep coming. Both the FTC and the Department of Justice's Antitrust Division play pivotal roles in enforcing antitrust laws, often complementing each other's efforts.

I knew you were trouble: Looking ahead, the spotlight is on Live Nation, the parent company of Ticketmaster, as the next target of antitrust scrutiny. Ticketmaster has been criticised for decades, and Live Nation has long faced complaints about its practices, including high ticket prices, poor customer service, and anti-competitive tactics. But a debacle involving Taylor Swift concert tickets in 2022 kind of took things to the next level. Now, the Justice Department is poised to challenge Live Nation's dominance in concert promotion and ticketing as soon as next month.

The numbers

• Over 80% — Ticketmaster's market share in primary ticket sales in major US venues
• 50 — The record number of antitrust actions by the FTC and DOJ in fiscal year ending 30 September 2022

Choosing sides 🌐

Microsoft's recent $1.5 billion investment in Emirati artificial intelligence company G42 may seem like just another tech deal, but its implications reach far beyond business... The investment is somewhat of a strategic collaboration between Microsoft and the Biden administration to counter China's influence in AI technology, particularly in the Gulf region.

G42, led by Sheikh Tahnoon bin Zayed, holds significant sway in the Gulf and has forged a number of high-profile business partnerships. However, its ties with Chinese firms raised red flags in Washington — at one point Biden officials were even considering sanctions on G42.

As part of this deal, G42 has made a number of concessions, including divesting from ByteDance, the owner of TikTok, and stripping out equipment from Chinese firms like Huawei. “The US is quite naturally concerned that the most important technology is guarded by a trusted US company,” Brad Smith, Microsoft’s president, told The New York Times.

The deal — a blend of business and geopolitics — is also part of Microsoft's ongoing strategy to dominate AI. Beyond OpenAI, Microsoft has poured billions into AI ventures like Mistral and has announced plans for significant data centre expansion. This deal is a chance for Microsoft to further expand its AI portfolio and tap into Middle Eastern markets hungry for AI advancements, and ready to spend.

Microsoft’s role in shaping the development of AI has helped propel its shares more than 40% in the last 12 months, overtaking Apple, and clinching the crown of the world’s most valuable company by market capitalisation.

In other news 🤓

Some other sparks that have been flying this week:

• Brace, brace! — Boeing's ongoing quality issues have plunged United Airlines into financial distress. The grounding of Boeing's 737 Max 9 fleet, following the door plug incident on an Alaska Airlines flight, dealt United a $200 million blow in the first quarter. United stated that profitability would have been achievable without this expense. With around 80% of its mainline fleet made up of Boeing planes, United bore the brunt of Boeing's troubles, as it operated 86 Max 9 jets, the largest fleet of any airline globally.
• Hold the phone — In a smartphone market shake-up, Samsung has reclaimed its title as the world's largest smartphone seller, surpassing Apple in the first quarter of 2024. Preliminary data from the International Data Corporation (IDC) indicates that Samsung shipped just over 60 million units, beating Apple's 50.1 million shipments during the same period. Apple also experienced a nearly 10% year-over-year decline in sales. Chinese firms such as Xiomi and Transsion are experiencing a surge, with year-over-year sales for those companies rising 33.8% and 84.9% in Q1 2024, respectively.
• Take that to the bank — America's top banks have announced robust earnings for the first quarter of 2024. JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley all surpassed or met analysts' expectations in revenue and earnings. Consumer spending remained strong, while a surge in dealmaking, stock, and bond sales boosted profits, particularly for Wall Street-focused banks. Collectively, the six major banks reported profits of $35.63 billion, a slight decrease of 3% from the same time last year, with half experiencing profit declines and the other half witnessing increases.

Next week 🗓️

Earnings reports are expected from Microsoft, Alphabet, Amazon, Meta Platforms, and Tesla.

That’s all for this week!