Sidekick Money · Sidekick Market Pulse - 27th February 2023

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Welcome to this week’s Market Pulse. In this week’s edition we have:

A hand in the technology cookie jar?
Meta follows Twitter with paid verification
UK women starting more new businesses than ever before.

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It’s important to note that the content of this Market Pulse (including the answers to any questions) 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.

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1) A hand in the technology cookie jar?

The current US administration is intent on slamming the brakes on Chinese high tech development, especially in areas with military applications like artificial intelligence. Tension between the US and China over intellectual property has been brewing for years. In 2018 the US even made an official complaint to the World Trade Organization, alleging that China was stealing its intellectual property[1].

To curb China’s access to advanced technology, Washington recently announced an export ban on the sale of certain sensitive technologies[2]. ASML, a Dutch company that makes advanced semiconductor manufacturing equipment, has been caught in the middle. Due to the ban they can no longer sell their more advanced equipment to China.

ASML is one of Europe's biggest technology companies. They have a 90% share in advanced lithography systems that are needed to manufacture the very latest chips[3]. Without access to these machines China won’t be able to make the most advanced chips and their technological progress could slow to a crawl.

But it seems like the ban might not be enough to stop a transfer of sensitive technology to China. Recently, ASML reported the theft of highly sensitive data by an ex-employee in China[4]. And this is not the first time ASML technology has been misappropriated. A year ago ASML accused a Chinese company of stealing trade secrets and in 2018 ASML attorneys alleged that ex-employees plotted to steal data and send it to a company headquartered in China[5].

There is a technological cold-war unfolding between China and the US. The US fears that it and its allies are overly reliant on Chinese supply chains for advanced chip manufacturing. They are taking aggressive action to address the issue.

As a result of the export bans, some companies are being forced to adjust their supply chains but pivoting manufacturing away from China won’t be cheap[6]. These higher costs might eventually make it into the prices we as consumers have to pay for products. This could make it even more difficult for central banks to get inflation back to target.

Global technology supply chains are fracturing and a realignment away from China could affect us all. But there will be some winners too. Countries, like India, that are closely aligned with the US and its allies could see a wave of new investment in tech manufacturing over the next decade[7].

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2) Meta follows Twitter with paid verification

Meta shares have been under pressure for some time. Between September 2021 and October 2022 the Meta share price fell more than 70%. And, despite the recent rally, it is still more than 50% below the September 2021 peak.

A few factors contributed to poor share price performance. In 2021 Apple made privacy changes that restricted Meta’s ability to track users and provide targeted advertising[8]. At the time, Meta said that it might lose more than $10bn, or about 8% of total revenues[9].

Another issue weighing on the share price was the wall of money CEO Mark Zuckerberg was throwing at Reality Labs, the division responsible for metaverse development. By late 2022, Meta has spent more than $36bn on the metaverse[10]. And it's not like Reality Labs are making any money. In 2022 alone, the Reality Labs division lost $13.7bn[11].

Some investors demanded that Meta refocus on its core business, digital advertising. The company seems to have listened. In the most recent management update, Mark Zuckerberg said that 2023 is going to be ‘the year of efficiency’ and that they would get costs under control[12].

It also seems like Meta took a page from Elon Musk's Twitter playbook. They plan to launch a paid subscription service called ‘Meta Verified’. Paying $15 a month will give an Apple IOS user a ‘blue badge’ and ‘direct access to customer support’ among other features. This sounds similar to Twitters ‘blue tick’ but is a bit more expensive. Twitter only charges IOS users $11[13].

Facebook has almost 2bn daily active users and Instagram has another 500mn[14]. Meta is targeting creators, or people that generate some income from Facebook or Instagram, with their new ‘Verified’ service. There are around 300mn of them[15].

While the paid verification service makes sense, it seems a tad unoriginal. As we already pointed out, their verification service is suspiciously similar to Twitter’s. Instagram Reels should also be vaguely familiar to TikTok users. Yes, we know - you don’t have to reinvent the wheel to make money but we really hope they don’t try to make a self-driving electric car next.

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3) UK women are starting more new businesses than ever before

Despite a very difficult market environment during 2022, women in the UK started a record number of new companies.

The Alison Rose Review of Female Entrepreneurship paints an encouraging picture. In 2021, over 145,000 all-female-led companies were founded in the UK. Last year that number was even higher, at more than 151,000. Young women, between 16 and 25, founded almost 18,000 businesses last year, 20 times more than the number of companies they started in 2018.

The Investment in Women Code is a commitment by financial services firms to improve female entrepreneurs' access to the resources they need to succeed. In 2021, 134 firms had signed up to the code. Last year that number increased to 190.

The focus on funding, advice and mentorships have led to an explosion of female-led startups but there is still a lot of work to do. A finding of the 2022 Rose Review was that female entrepreneurs spent twice as long on caring responsibilities as their male counterparts. According to the report, this has been a contributing factor to a drag on the recovery of such female-led businesses post-covid.

Beyond the obvious equality arguments, there is also a strong economic argument for addressing this inequity. Men are still more than 3 times as likely to start a company in the UK; if the number of women-founded companies were on par with this, the Rose Review estimates it could add £250bn to the UK economy [16][17].

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