Equity Highlights: November 2023

Welcome to Broyhill's Equity Highlights, where we share a few quick takes on recent news across the portfolio. every month.  

We aim to make these highlights easy to read and easy to repeat. Feel free to share our work! 

The stock market is getting Ozempic'ed. After the results of Novo Nordisk’s most recent trial suggested that Ozempic, Wegovy, and other GLP-1 weight loss drugs could help patients with kidney failure, the market speculated which companies would be impacted by the drugs. MedTech companies in the diabetes and cardiac markets saw their market caps plummet, as did snack food and beverage companies. We have been laser-focused on related opportunities for weeks and look forward to sharing more in our year-end letter.

A ‘Zelda’ Movie Could Mint Money for Nintendo. Nintendo has long suffered from self-inflicted opacity and what has been interpreted as a general disregard for shareholders or at least a less "Western" view of shareholder capitalism. We have followed the company closely for years, looking for hints that those views were shifting, as the company's creative culture and iconic IP are nearly unparalleled in the media industry. The recent release of The Super Mario Brothers Movie, which blew away even the most optimistic expectations, the opening of the company's first Super Mario theme park in the US (following its inaugural opening in Japan and scheduled opening of its second US park), and the addition of the company's first American board member (Founder and CEO of film producer Illumination) would seem to indicate that the winds are changing. The recently announced Zelda movie further reinforces our belief that the company's continued endeavor to monetize its intellectual property will enhance earnings per share.

Venmo Groups aims to make it easier to split up and track expenses. Venmo recently released Venmo Groups, making it easier for users to split expenses. The feature rivals bachelorette party staples Splitwise and SettleUp, commonly used instead of Venmo to manage shared expenses. When we saw this piece of news, we were reminded of other companies that have, throughout history, “borrowed” the great ideas of their competitors. For example, Meta Platforms adding Snapchat-like Stories and TikTok-like Reels to Instagram and Facebook. Idea stealers widen the moat around the product or service its competitors fail to replicate and rob others of the ability to compete through differentiation.

EPAM Signs Strategic Collaboration Agreement with AWS to Help Organizations Become Cloud-Native. One of our newer holdings, EPAM Systems, is an IT services company caught in the wake of AI insanity. The market believes that artificial intelligence will eliminate the need for IT services. History tells us quite the opposite. In the past, whenever a significant technological advancement seemed to mean the end of IT, the IT services industry thrived by contrast. EPAM recently signed a strategic agreement with AWS to assist organizations in their transitions to the cloud, demonstrating, yet again, its importance through technological advancement. We also expect EPAM Systems to be an essential facilitator of organizations' adoption of artificial intelligence.

Spotify Projects New Royalty Model Will Reallocate $1B to Artists and Labels Over Five Years. Last month, we highlighted how UMG is tackling AI-generated music through its partnership with Deezer. Now Spotify is following suit. Recently, Spotify announced it would move $1B in royalty payments to “legitimate” artists and rightsholders. The move intended to reward human creators over artificial intelligence will benefit Universal Music Group, which owns the rights to over 30% of human-generated music.