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Today's markets: Cash drives growth at Microsoft and Alphabet, beer price set to rise

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Today's markets: Cash drives growth at Microsoft and Alphabet, beer price set to rise
  • Alphabet and Microsoft deliver strong financial results
  • Team17 bags Marvel and Lego partnership
  • Beer price set to rise post-budget

Cash is king at Alphabet

Two of Alphabet’s (US: GOOGL) three revenue-generating divisions remain highly loss making, but that doesn’t really matter for a company which generated $25bn of cash from operations in the three months to September 2021 and is sitting on over $142bn in cash and marketable securities. Indeed, Alphabet’s loss-making divisions - which include Google Cloud and its range of ‘other bets’ from driverless vehicles to intuitive healthcare - cannot spend money fast enough. In the third quarter management put some of its cash to use by buying back $12.6bn worth of shares. 

The reason the company is so cash generative is that it provides services which are used by the majority of the world constantly. In the third quarter Google search revenues rose 44 per cent to $37.9bn, YouTube ads revenues were up 43 per cent to $7.2bn and other Google network sales rose 40 per cent to $8bn. 

Microsoft deliver strong cloud revenue growth 

Microsoft (US: MSFT) is another company that the world would struggle to cope without and, like Alphabet, put in another extraordinarily cash generative quarter. In the fiscal first quarter to September group revenues rose 22 per cent to $45.3bn with strong double-digit growth reported in all three of the group’s main operating divisions (productivity and business processes, intelligent cloud and more personal computing). Cash generated from operations rose by just over $5bn to $24.5bn. 

The cloud division posted an especially strong quarter as server products revenue rose more than 30 per cent, driven by strong demand for the Microsoft Azure product from the company’s existing software customers. 

Price of beer set to rise 

At what stage is the price of a pint not worth it? £7.80 in central London? £3.90 in the Loughborough students union? The truth is that a 30p hike on pint prices - which City Pub Group boss Clive Watson has warned is the inevitable upshot of the government’s proposed increase in national living wage - is unlikely to deter punters. A far greater threat is the sector’s continued difficulty to attract staff. A higher living wage sounds like a sensible solution to the staff challenges much of the hospitality sector is facing in the wake of the pandemic and Brexit. 

But combined with the inflation-fuelled increase in energy and ingredient costs and many pub owners are worried about their margins. Those like City Pub Group which pay rent on expensive properties in central locations where footfall remains below pre-Covid levels are facing continued challenges. While the likes of Wetherspoons (JDW) which operates on wafer-thin margins could struggle with inflation-fuelled price increases. But the pub pint will always be in high demand and that is a good thing. Here’s Chris Dillow on why pubs matter.  

Team17 announces Lego and Marvel collaboration 

Two of the biggest names in children’s entertainment have joined forces with Aim-traded Team17 (TM17) to launch an educational app for 2-5 year-olds. “ The LEGO DUPLO MARVEL app will allow preschoolers to join Spidey, Captain America, Ghost-Spider, and other heroes for learning adventures and imaginative play,” reads the announcement from the company. 

It’s unclear yet what the financial rewards are for the collaboration, but a partnership with these two giants of play can only be a positive thing for Team17 which develops a mixture of its own games and those on behalf of other creators. 

Both the gaming and the digital education industries have had a strong few years amid the challenges of the pandemic, but forecasts are for continued growth. Team17 is well placed to benefit.