The Murdochs' Next Battle

Good morning.

Former president Donald Trump was victorious in Tuesday's election, according to CNN and NBC News projections that he will secure enough electoral college votes to return to the White House. S&P 500 Futures surged more than two percent in early trading hours, not unusual since markets tend to be cautious in the leadup to elections before rallying when a result is clear.

There are still crucial votes yet to be cast. 

We're talking of course about the Federal Reserve, which begins its two-day meeting today to decide on the size of its all-but-certain next rate cut. The smart money is on a 25 basis point reduction, as opposed to another super-sized 50 basis point cut. But as we all know all too well these days, predicting how anyone will cast their vote is a fool's errand.

Do Rupert Murdoch and his brood face the very same fate as the Roy family, who lost control over their media empire amid a messy succession battle? 

On Tuesday, an activist investor and a pair of proxy advisory firms joined the ranks of those backing a recapitalization plan that would end the company's dual-class share structure, which gives the Murdoch family outsized control of the company.

Election Day

The Murdochs own just 14% of News Corp, the parent company of The Wall Street Journal, HarperCollins, and a bevy of other publishing properties. But thanks to the dual-class share structure, the family controls roughly a 40% voting share. It's not the first time anyone's taken note of this disparity. About a decade ago, a similar move was made to strip the Murdochs of their disproportionate power, with roughly 90% of non-Murdoch-aligned voters backing the ultimately doomed effort. 

But the movement has been reborn. Back in September, Reuters reported that Starboard Value, the activist hedge fund run by Jeffrey Smith, filed a resolution to put to vote the company's share structure at its shareholder meeting on Nov. 20. And this time around, the rebels have earned support from big-name backers:

• Last Thursday, the influential proxy advisory firm Institutional Shareholder Services came out in support of Starboard's plan. On Tuesday, it was joined by fellow proxy advisors Egan-Jones and Glass Lewis.
• Fellow activist investor Irenic Capital Management came out in support of the measure on Tuesday, though in a letter sent to News Corp's board and seen by CNBC, the firm stressed that it backs the current management's leadership: It just supports a "one share, one vote" principle.

Starboard has criticized the company's recent performance, and has pushed for News Corp to spin off its valuable portfolio of real estate listing sites. Expect all eyes to be on News Corp's earnings report — scheduled for Thursday — before the Nov. 20 meeting.

Family Matters: Elsewhere in medialand, Bloomberg reported Tuesday that Shari Redstone and her son, Tyler Korff, will leave the board of Paramount Global after the company completes its planned merger with David Ellison's Skydance Media, bringing the family's long reign to an end. Let this be a lesson to the Murdochs: Sometimes you just have to let go. 

Written by Brian Boyle

Ferrari shares took a high-octane dip Tuesday, falling 7% with power and torque.

The sports car manufacturer reported improved sales and earnings in the third quarter, extending its streak of outperforming other luxury auto companies this year. Markets, however, can be as finicky as a stick shift, and were spooked by some metrics.

A Wrench in the Top Gear

Ferrari's share price is up just over 30% this year, lapping the likes of Mercedes-Benz Group (down 11.5%), Lamborghini and Bentley owner Volkswagen (down 24%), and Alfa Romeo owner Stellantis (down 40%). All three of those rivals also posted lower revenue in their latest quarter. 

Meanwhile, Modena, Italy-based Ferrari reported €1.64 billion ($1.8 billion) in sales in the third quarter, a 6.5% increase year-over-year, even as it shipped 76 fewer vehicles — or 3,383. Adjusted earnings before interest and taxes rose to €467 million from €423 million at a 28.4% margin, up 10% from last year. It also doubled down on a bullish upgraded guidance from August that foresees annual sales climbing 9% to around €6.5 billion. So why the reverse-gear share price on Tuesday?

• Shipments to mainland China, Hong Kong, and Taiwan — where luxury sales have slumped across the board — contracted 29%, although they rose 6% in the rest of Asia. While shipments to Europe, the Middle East, and Africa rose 2%, they fell by the same percentage in the Americas.
• But Ferrari, being the crème de la crème, only sells about 14,000 cars a year at very high margins, and with increasingly lucrative customizations. Catering to the richest of the rich and the global elite means it has less exposure to markets where there are downturns because it can rotate sales elsewhere.

Take Note: RBC Capital Markets, in a research note, said to pay little mind to Tuesday's sell-off: "Expect shares to see support on a pull back especially given how unattractive autos is currently. Ferrari is a rare place to hide out." Hiding out in a Monza SP2? We'll take it.

Written by Sean Craig

Did King Bowser throw his hammer at profit margins?

Japanese video game giant Nintendo revealed on Tuesday that it had suffered a 69% drop in its profits year-over-year for the most recent financial quarter. It also announced it's cutting its expectations for full-year profit by 10%, and the rapid loss of momentum suggests that its console, the Nintendo Switch, is running out of steam with consumers.

Last Life

Nintendo has given the world some truly iconic consoles: the GameCube, the Wii (and its accompanying soundtrack), and most recently the Nintendo Switch, which is one of the best-selling consoles of all time. Even as it produced these game-changers, Nintendo managed to sidestep the "console wars" between Sony and Microsoft. Nintendo has successfully marketed itself as a family brand that sits apart from the Xbox and PlayStation.

Now it sits apart for the wrong reasons. While Xbox and PlayStation managed to drum up fresh demand for their consoles by releasing powerful new versions, the Nintendo Switch remains fundamentally unchanged since its launch in 2017, and its goodwill surplus is finally running out:

• In its earnings, Nintendo said sales of the Switch were down 31% year-over-year for the quarter ending in September.
• Nintendo President Shuntaro Furukawa tried to put a positive spin on the numbers, Reuters reported, saying: "For a platform that is in its 8th year in the market, both hardware and software enjoy stable demand and brisk sales."

Rhys Elliott, games industry analyst at MIDiA Research, told The Daily Upside the flagging results were no big surprise. "[Nintendo] is an extremely hit-driven company. The whole Switch platform revolves around Nintendo IP and is driven by first-party revenues," Elliott said, adding the company has had a slow year content-wise.

Holiday Blues: Nintendo isn't expected to announce a second iteration for the Switch until March 2025, so its stock is likely to have a pretty rough ride through the end of 2024 — unless everyone decides to get their kid a Switch for Christmas.

Written by Isobel Asher Hamilton

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