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09 February 2022

Market Round-Up

The New York Times Company has acquired overnight sensation word game Wordle for a price in the low seven figures – a piecemeal deal compared to Microsoft’s recent gaming acquisition of Activision Blizzard for $68bn. Wordle was originally built by Welsh-born, Brooklyn-based software engineer Josh Wardle as a gift to his word-game loving girlfriend. The title is a play on his surname which encompasses the objective of the game. After the pair had been playing for a couple of months, and with the game rapidly becoming an obsession in his family’s WhatsApp group, Wardle decided to release it to the rest of the world in October. By November, the game had 90 players and exactly two months later, the number of people playing rocketed to 300,000.

The idea of Wordle came to Mr Wardle after he developed a newfound passion for the New York Times’ crosswords and Spelling Bee games during the pandemic. It is a once-a-day game in which the player is invited to guess a five-letter word. After the first guess, by turning either green, yellow or black, it is revealed which letters the player has got correct, if any. They are allowed six attempts. The acquisition seems very appropriate given the New York Times’ key role in the game’s origins.

In recent years, the New York Times has built the largest online subscriber base for news globally, which has been bolstered by growing subscriptions to its cooking and games sections. December 2021 saw its games app alone hitting 1m subscribers. The New York Times has set a target to reach 10m digital subscribers by 2025. The acquisition of Wordle is not the only takeover that the news company has used to achieve its target; last month it purchased lossmaking sports website the Athletic in a US$550m deal. It was the company’s largest purchase in almost 30 years.

Meanwhile in the UK, Tesco, its largest supermarket chain, is putting 1,600 roles at risk of redundancy in an attempt to mitigate rapidly rising labour costs. It has announced that it will be making vital changes to stock replenishment duties in which roles will move from night-time to daytime in approximately 36 of its bigger stores and 49 convenience stores. Additionally, the supermarket plans to convert 36 of its petrol stations to pay-at-pump only during overnight hours in a bid to reduce the number of cashiers. In a further move, the grocer has also revealed that it will be closing fish, meat and hot deli counters at 317 of its stores.

Despite these numbers appearing worrying for employees, Tesco has committed to aiming to offer alternative roles to as many colleagues as possible as they currently have 3,000 vacancies across its business. CEO for UK and Ireland Jason Tarry said that the plans are a way to streamline the business so it works “simply and efficiently” and reflects the changing behaviours of shoppers. The company has advised that a relatively small proportion of people and stores are affected in comparison to the size of its UK operations.

Pressure is mounting on retailers, particularly supermarket groups, as the wages of most staff are paid on an hourly basis, making the forthcoming rising wage costs a scaling challenge. Minimum wage in the UK is set to rise by 6.6% in April to £9.50 an hour, while the 1.25% increase in employer national insurance contributions is set to come into effect in the same month. This will expose national supermarket groups to a harsh reality in which the only way they will be able to manage their balance sheets is by finding savings elsewhere. Night-time workers currently receive a £2.30 an hour premium over what day time workers get, which will be reviewed in the spring to reflect inflation. Therefore, Tesco’s changes via redeployment of replenishment duties to daytime hours looks to be a promising start to cost saving.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
Market Round-Up
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