🎙️ Worldcoin

As the stock market rally rolls on, it’s not just a Tech rebound anymore 😎

For months, bears proclaimed that the market lacked “breadth,” which is slang for how many stocks are participating in an upswing.

Yet this summer, everything from Financials to Real Estate to Energy and Industrials has helped lead the market higher.

So much for impending real estate collapse, recession, and falling demand: The more economically-sensitive areas of the market are performing best.

Our Chart of the Day below has more.

— Matthew, Shawn & Weronika

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• Behind Spotify’s strongest-ever quarter for user growth

• The eye-scanning Worldcoin crypto project launches

• The latest $22 billion investment in semiconductors, the ‘new oil’

All this, and more, in just 5 minutes to read.

CHART(S) OF THE DAY

IN THE NEWS

🎶 Spotify Posts Strongest Quarter of User Growth (WSJ)

How much will you pay for premium music? As much as we love vinyl, it’s nice to have all of humanity’s music just a few clicks away.

This week, Spotify raised prices for its subscription to $10.99 a month in the U.S. as it tries to one day turn a profit. That announcement came right before the streaming giant recorded second-quarter earnings, notching its strongest-ever quarter for new users. But Spotify also reported steeper losses from podcasting cuts and higher music royalty costs.

• The stock, up nearly 73% year-to-date (YTD), fell about 13% Tuesday. (Over the past five years, shares are still down 24% compared with the S&P 500’s 63% gain.)

CEO Daniel Ek knows the stock has struggled because the company hasn’t posted a profit. He hopes product improvements, more podcast offerings, and higher prices will get his Stockholm-based firm there. “If we’re doing that, I believe that we have the ability to then raise prices to keep the value to price ratio at an appropriate level,” he said.

Sub growth: Overall, Spotify reported 551 million monthly active users, a 27% jump from a year earlier, 21 million ahead of guidance, and a record high for the company. Driving the growth: Improved retention and savvy marketing, per executives.

• But Spotify’s real breadwinner is its base of paying subscribers. Like Costco and Amazon Prime, Spotify drives the business on recurring subscription revenue. Its base of paying subscribers, its most lucrative type of customer, rose 17% to 22o million, topping estimates. User growth was particularly strong in Latin America and among younger, Generation Z listeners.

But Wall Street needs to see profits, and Spotify has struggled in that department, reporting a $335 million loss, which drove the stock selloff. What didn’t help: Higher music royalty costs. The company pays out about 70% of its revenue to music rights holders.

Why it matters:

As the chart shows, Spotify has many free users who listen to advertisements, but premium subscribers drive nearly all of its profit. Still, the company has prioritized investment in growth over profit for years.

• Spotify continues to invest in the growing podcast space and associated ad revenue, which accounted for about 13% of its overall revenue last quarter. But average revenue per user, a key metric, slipped 6% mostly because Spotify drew new subscribers through discounted plans and lower prices in emerging markets.
  

• In June, Spotify cut about 200 jobs, or 2% of its workforce, after struggling to make money in podcasting. Ek, the CEO, told investors the company made the “right bet” on podcasts four years ago before the industry kicked into gear during the pandemic. Ek said he believes Spotify is the top platform for podcasting globally.

Spotify continues investing in top podcasting talents, including Joe Rogan, Alex Cooper, and Emma Chamberlain, each earning millions yearly, thanks to their large followings.

A WORD FROM THE TEAM

If you love this newsletter, you’ll love our podcasts. For years, our flagship podcast, We Study Billionaires, has topped the charts by interviewing the world’s best investors.

But that’s not our only show. We also make podcasts for millennials learning about investing, Bitcoin, and living richer, wiser, happier.

👁️ Sam Altman’s Controversial Worldcoin Project Launches (CoinDesk)

If you like to proclaim that the modern world increasingly resembles George Orwell’s book 1984, well, you may be right in this case.

Seemingly straight out of a Black Mirror episode, the founder of OpenAI (the company behind ChatGPT), Sam Altman, has another big project: Worldcoin.

• It’s a cryptocurrency with a side order of surveillance. In exchange for scanning the iris of your eyes to prove your humanity, you’ll receive Worldcoin crypto tokens.

Time to get scanned: After collecting over two million users during a beta period, Worldcoin plans to expand its eyeball-scanning operations to 35 cities across 20 countries, hoping to scan the world’s eyeballs. But Altman would settle for getting just “two billion” users to sign up.

• As promised, those who scanned their eyes have been issued their Worldcoin token, which will be tradable on crypto exchanges like Binance — the largest in the world.

“The goal is simple: A global financial and identity network based on proof of personhood. This feels especially important in the AI era. I’m hopeful Worldcoin can contribute to conversations about how we share access, benefits, and governance of future AI systems,” says Altman.

• The hope is that Worldcoin can be a network for verifying human identities, similar to a “digital passport,” in a world likely to be filled with more and more artificial intelligence. Online, Worldcoin’s ID network could help distinguish real people from AI bots.

Altman also believes the project can help reduce fraud when deploying universal basic income (UBI) in response to job displacement caused by AI since everyone in the Worldcoin network would be verified humans.

Why it matters:

To frame things slightly differently, the guy leading one of the world’s most innovative AI projects, ChatGPT, now wants to build an (iris-powered?) financial network in response to the disruptions sparked by AI.

People are skeptical, including the broader digital asset community. Ethereum’s co-founder Vitalik Buterin published a blog piece yesterday, raising his concerns about the project’s potential for abuses.

Here’s how Buterin explains the project’s basic philosophy:

“AI is going to create a lot of abundance and wealth for humanity, but it also may kill very many people's jobs and make it almost impossible to tell who even is a human and not a bot, and so we need to plug that hole by (i) creating a really good proof-of-personhood system so that humans can prove that they actually are humans, and (ii) giving everyone a UBI.”

• The Financial Times reports that the Worldcoin cryptocurrency won’t be available in the U.S., at least for now.
  

• Collecting and storing millions of people’s biometric data raises clear privacy concerns, and the project’s efforts to heavily promote itself in the developing world have raised even more concern — about 30% of verified users are from Asia and Africa.
  

MORE HEADLINES

📦 UPS, Teamsters reach labor deal to avoid strike

🤬 FDIC scolds banks for manipulating deposit data after SVB’s collapse

🏖️ Extreme heat threatens Europe's $2 trillion travel industry

⚽️ Saudi soccer club makes world-record bid for Kylian Mbappé

🇩🇪 The Semiconductor Investment Boom Spreads (Bloomberg) 

Remember the shortages and cost surges for pretty much everything during the pandemic? One of the most famous examples was the shortage of semiconductor (computer) chips for new cars, prompting a boom in demand for used vehicles.

• The chip shortage and supply chain turmoil generally spurred huge manufacturing and supply chain investments in the U.S., but spending on the initiatives to address Covid-era failures is picking up globally.

The latest example: Germany’s economic ministry recently announced plans to invest roughly $22.2 billion to address concerns over supply chain vulnerabilities and reliance on South Korea and Taiwan for semiconductor chip manufacturing.

• After the announcement of the “European Chips Act” in April (a response to the U.S.’s 2022 CHIPS and Science Act), European countries are uniting to guarantee supplies of critical semiconductor chips used in everything from cars to kitchen appliances, smartphones, and military weapons.

Attracting global companies: The German government has approved over $11 billion in aid for a new plant for the American chip-maker Intel.

And negotiations are underway to allocate $6.6 billion in subsidies to companies like Germany's Infineon Technologies and Taiwan Semiconductor Manufacturing Co. (TSMC), which reportedly expressed interest in building a semiconductor production facility in the country.

Why it matters:

Countries recognize how critical semis have become. Thus, nobody wants to be left out of what some have called “the new oil.” Many governments now see semiconductor success as a key economic driver.

The U.S., for one, has bet heavily on the space, particularly in Arizona.

• Across various industries, the demand for semiconductors in 2020 and 2021 surpassed pre-pandemic forecasts.
  

• The market has seen substantial growth for the last three years, and it’s not just Nvidia, either, as AMD, Micron, Qualcomm, and Texas Instruments are all fighting for ground.

The bottom line: European countries, Germany included, want less reliance on foreign suppliers to keep up in the semiconductor boom.

See you next time!

That's it for today on We Study Markets!

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