BY RICHARD BEALES

Microsoft is the oldest of the current crop of technology Goliaths. Yet despite roots in the bell-bottom days of 1975, the $2.5 trillion software maker has been a recent Big Tech standout in terms of share-price performance. Boss Satya Nadella is poised to deliver again. That could make him the most successful second-generation chief executive ever, measured by value created.

Nadella took over in 2014 from Steve Ballmer, an early employee of founder Bill Gates. Microsoft’s market worth has grown by $2.2 trillion, from little more than $300 billion then. So far, Tim Cook at Apple has presided over a slightly larger increase in market value since officially taking over from Steve Jobs in 2011. But Nadella, who started from a smaller base and has had less time, is breathing down Cook’s neck. Sundar Pichai, first at Google and then at parent Alphabet, is far behind.

And Microsoft is on a roll. The so-called FAANG stocks – Meta Platforms (formerly Facebook), Apple, Amazon.com, Netflix and Alphabet – are a favorite yardstick for investors. Stacked against them, the total return on Microsoft stock over the year to Dec. 8 is second only to Alphabet, and over three and five years it’s second only to Apple.

Gates’ middle-aged company still has plenty of energy left, too. In a November report, analysts at Deutsche Bank pointed to the “crown jewel” known as Azure, Microsoft’s cloud-computing business. Amazon Web Services used to dominate the public cloud. It had a 65% market share in 2017, versus 20% for Azure and just 15% for Google’s offering. By 2020, Microsoft had raised its share to 30%, almost entirely at Amazon’s expense, according to Deutsche.

Microsoft has traditional strengths with business customers and the resources to come from behind. That happened with the company’s Teams product after Slack Technologies developed the market for workplace-chat software – and it could happen again with the idea of the so-called metaverse, beloved of Meta boss Mark Zuckerberg.

Between cloud computing, productivity, collaboration and even gaming, Microsoft’s activities mesh with powerful, global digital trends. Deutsche’s number- crunchers picked a target stock price that’s more than 15% above the company’s early December trading price. That could add another $400 billion or so to Nadella’s value-creation tally, and take him past Cook.

First published December 2021

BY ROBYN MAK

A new Chinese technology trinity is set to rise. Following in the footsteps of Baidu, Alibaba and Tencent are ByteDance, Ant and Didi Global. After a brutal year for the entire sector, the path back through new rules and a slowing economy looks tough, but Ant, Jack Ma’s financial services marketplace, will lead the uphill march.

All three have taken significant hits. Didi, the ride-hailing company, lost half its market capitalisation in a few short months after a New York initial public offering in June, and in December it started the process of delisting its shares amid pressure from Beijing. Privately held stakes in TikTok- owner ByteDance, once pegged at $400 billion, have been changing hands for less. And Ant backer Warburg Pincus recently slashed its valuation by 15%. 

Relocating to the Hong Kong bourse should put Didi back into Beijing’s good graces. Likewise, Ant is restructuring its entire payments-to-lending business and brought in new state backers to satisfy officials.

Reviving growth will be less straightforward. Didi faces a raft of new rules aimed at protecting China’s gig economy workers. Those range from providing social insurance to a cap on how much they can siphon from driver fees. That will push up costs at the unprofitable company.

For ByteDance, an online advertising slowdown looms large. Efforts to diversify into video games and education have led to layoffs. Cybersecurity authorities also are preparing restrictions on how algorithms can be used to reel in viewers. Douyin, the Chinese version of TikTok and ByteDance’s main money-spinner, has started to let users opt out of personalised recommendations.

Ant has the clearest path ahead. Its fast-growing credit business was curbed, but the company retains its payments dominance. And in a sign that regulatory pressure may be easing, its consumer finance division in June secured an important licence in micro-lending, insurance, fixed income securities and more, putting a vital part of its operation back on track.

What’s more, the central bank in November accepted the application of a personal credit-scoring business 35%-owned by the company. Such progress might even pave the way for a long-delayed IPO and puts Ant in position to be the best of the BAD bunch.  

First published December 2021

BY UNA GALANI

India’s newly listed startups are set to discover their limits. Buyers of stocks in the giant emerging market will increasingly give money-losing digital companies a short leash on dizzying valuations. Some mix of rampant competition and higher mobile data tariffs will crash the party.

A pandemic-induced flood of easy money and mom- and-pop investors have lifted stocks around the world, but Indian tech companies hit extremes in 2021. One97 Communications’ financial super-app Paytm, Falguni Nayar’s online beauty retailer Nykaa, and food delivery giant Zomato fetch more than 30 times sales as of Dec. 8, per Refinitiv, after listing their enterprises in Mumbai.

Peers elsewhere point to rich valuations in India as a benchmark to insist their businesses are cheap. Other companies, including ride-hailing giant Ola Mobility, budget lodging chain Oyo Hotels & Homes, and Delhivery are eyeing debuts. All three are backed by SoftBank, the Japanese investor arguably most responsible for bidding up private company share prices.

Newcomers will find it harder to maintain premium valuations than traditional consumer-facing giants like Indian lender HDFC Bank and Hindustan Unilever; both are richly rewarded for their healthy margins, consistently trading on close to 4 times trailing book value and over 60 times earnings, respectively, per Refinitiv.

One obstacle is the sheer raft of newcomers jostling for users. Although there’s plenty of room to grow online, India’s fierce competitive landscape contrasts with China, where Alibaba and its affiliates dominate in e-commerce and payments, or Southeast Asia where all-singing super-apps like Grab and GoTo dominate in ride-hailing, delivery and digital financial services. Just-profitable Nykaa competes with Walmart’s Flipkart, Amazon.com and Goldman Sachs- backed Purplle for example.

Maintaining the current growth rates will become costlier as onboarding customers and merchants in far-flung towns can be a painstaking process requiring boots on the ground. A difficult regulatory environment, which bans charges for basic retail money transfers, is one reason adoption of digital payments by customers is slowing.

And while rising tariffs for using mobile data on Bharti Airtel and Vodafone Idea’s networks will hurt video streaming and online gaming the most, higher subscription charges of up to one quarter will prompt customers in the value-conscious market to think twice before spending hours browsing for products online. India’s tech story is strong, but its valuation bubble is poised to deflate.

First published December 2021

BY OLIVER TASLIC

Many successful consumer technologies began life with a narrow focus. Think 1980s executives wielding bulky cellphones or scientists sharing research on Tim Berners- Lee’s newfangled World Wide Web. If the metaverse goes the same way, Microsoft – rather than chief proponent Meta Platforms – will be in pole position.

The metaverse refers to a more immersive version of the current internet: pulling on a virtual-reality headset, meeting friends at an entirely digital theatre, and watching a movie together, for example. Among its cheerleaders are “Fortnite” maker Epic Games and Mark Zuckerberg’s Meta – formerly Facebook – which is looking to capitalise on its VR unit.

But regular punters’ appetite for the metaverse is uncertain. To many people, existing video games like those available on the Roblox platform are already part of it. But the next step, VR headsets, remain pricey, not to mention heavy: Meta’s Quest 2 costs $300 and weighs half a kilogram. Meanwhile, subtler augmented-reality glasses are still nascent.

Then there’s the unproven appeal of virtual experiences. Eventbrite, which helps people organise concerts, cooking classes and such, saw sales collapse by two-thirds in 2020, despite the number of events on its platform falling by just 2%. It’s not clear that giving 2D online gigs an extra virtual dimension would have made much difference.

By contrast, corporations look a more fruitful target. The latest wave of Covid-19 has shuttered borders again, and finance chiefs are looking to keep a grip on expenses. Meta’s Horizon Workrooms software already allows for VR meetings. Yet although Microsoft boss Satya Nadella isn’t thumping the tub like Zuckerberg, that kind of customer is the software giant’s domain.

Slack Technologies’ experience shows how quickly Microsoft can catch up. By bundling its Teams product with existing subscriptions, users rapidly came from a standing start in 2016 to overtake former workplace-chat leader Slack within about three years. Slack agreed to sell itself to Salesforce.com for $28 billion in December 2020. Metaverse-wise, Nadella’s firm has partnered with Accenture to build “the Nth floor”, a virtual office the consultancy’s employees can beam into.

“If this is the future you want to see, I hope you’ll join us,” said Zuckerberg. At least at first, his enthusiasm may help arch-rivals more than it helps his own business.

First published December 2021

BY KAREN KWOK

Buy now, pay later is taking its millennial attitude up a notch. To keep consumers hooked on this newfangled instalment financing, companies from Sweden’s $46 billion Klarna to Australia’s Afterpay, soon to be part of Block, are extending their services beyond shopping to recurring payments like doctor visits and taxes. That adds to the risk of debt piling up. Call it “live now, look out later.”

BNPL took off at e-commerce sites where younger people purchase smaller-ticket items – say an outfit for a Friday night – without paying in full. Shoppers set pay-off dates for the loan without compound interest payments. It became one of the hottest trends in consumer finance.

A Momentive poll in August showed 20% of Americans used such services over the previous year. In 2020, when shopping went mostly online thanks to Covid-19, lending volume in the United States alone rose 10-fold to $39 billion annually, according to Mercator.

But the pandemic boost could be short-lived. Morgan Stanley analysts expect growth of gross merchandise value in Europe to slow from about 90% in the year to June to 22% annually up to 2024. Competition is heating up as PayPal and banks jump in. There are also fears that as millennials age and become more financially secure they will move to credit cards, which provide higher loan balances and perquisites.

To stay competitive, pay-later providers are going beyond their comfort zones in fashion and beauty. Featherpay is facilitating healthcare providers to offer longer-term instalment options. Wisetack is helping consumers pay for home and auto repairs. Klarna acquired Inspirock, a travel planning app.

Goldman Sachs-backed Zilch, worth some $2 billion, is charging UK consumers a fixed fee of about 2 pounds to pay anywhere – not just one retailer’s website. Customers can use the virtual Zilch card for groceries, utility bills, even taxes. Klarna, Affirm and Zip are offering similar features. Afterpay is providing instalment options as a form of subscription payments.

The business model hasn’t been tested by a financial downturn where consumer defaults rise. With interest rates still close to zero, for now there’s limited financing cost in providing goods virtually for free. But that won’t last. As money becomes more expensive, pay-later providers jockey to offer more products and credit losses go up, shareholders need to brace for a bumpier ride ahead.

First published December 2021