Friday 02/11/18

  1. In TECH NEWS, we see the ups and downs for Apple and Spotify
  2. In CARS NEWS, Volvo commits to shipping driverless cars and Subaru and Toyota announce an expensive recall
  3. In REAL ESTATE-RELATED NEWS, the UK’s north/south divide continues on prices and WeWork ditches the bottomless keg
  4. In INDIVIDUAL COMPANY NEWS, Starbucks delights and Patisserie Valerie survives
  5. In OTHER NEWS, I bring you a giant effigy of Boris Johnson. For more details, read on…



So Apple fell despite record revenues and Spotify took a beating…

Apple shares slide despite record result (The Times, James Dean) highlights Apple’s fourth consecutive quarter of record results, but it seems that investors were more focused on iPhone sales that were weaker than expected. The services business, which includes Apple Pay and Apple Music, put in another strong performance. Apple touts this as being a future growth driver – and I believe this as it is the glue that makes Apple products so “sticky” – but it still pales into comparison with handset sales. * SO WHAT? * Given that the company makes two-thirds of its revenues from its iPhones, you can see why the share price lives or dies by numbers of units sold, despite the average selling price rising from $793 versus the forecast of $751. Maybe I’m wrong, but I think that jacking your prices up to increase average selling prices can only work for so long before people start to abandon your product because it just becomes too darn expensive. Given the alternatives on 

offer, I don’t think that Apple can rely on this tactic for too long because there will be a limit on how much people are willing to pay for a phone.

Spotify shares fall more than 9 per cent (Financial Times, Anna Nicolaou) shows investor disappointment with the music streaming company’s announcement that it had not been able to hire enough people to keep up with its ambitions. The company has been throwing money at R&D with machine learning being a particular focus in a bid for the world’s biggest streamer to stay ahead of rivals Apple and Amazon, but the company feels that it just hasn’t been able to hire people fast enough. Spotify added 4m new paying subscribers in Q3 to make a total of 87m paying subscribers out of a total of 191m total users. * SO WHAT? * This is clearly a bit of a disappointment, but there could be more trickiness to come as negotiations with large record labels regarding royalties are due to begin in the coming months and could have a major impact on Spotify’s gross margins. Spotify has been rattling the cages of some music labels recently by approaching artists individually, but I guess there’s a delicate balancing act because they won’t want to alienate the labels for the sake of eeking out a better margin.



In car news, Volvo announces plans to ship driverless cars to Uber and Subaru and Toyota announce an expensive recall…

In Volvo to start shipping self-driving cars to Uber next year (Financial Times, Peter Campbell) we see that Uber and Volvo’s driverless ambitions are back on following that fatal accident in March this year, which effectively stopped development in its tracks. The companies agreed a deal last year to sell up to 24,000 XC90 SUVs to Uber to be fitted with self-driving systems but testing halted abruptly after one of its cars hit a pedestrian. Volvo also said that it was engaging with China’s Baidu to develop vehicles for the internet group’s self-driving programme. * SO WHAT? * This is obviously good from Volvo’s point of view, but unsurprisingly, there’s not been much further detail on the exact timing of the deliveries to Uber. The Baidu thing is a positive development, though, given that China is the 

world’s biggest car market and that this marks the first time that a foreign company has worked so closely with Baidu, which has developed the open-source autonomous driving platform called Apollo. Interestingly, this comes a day after Ford announced it is using Apollo to test its own vehicles in China. Mercedes is also using Apollo.

Subaru and Toyota to recall more than 400,000 vehicles globally (Wall Street Journal, Sean McLain) highlights an expensive recall for Subaru that will affect its popular Forester sport-utility vehicle, the Impreza compact, the BRZ sports car and the Subaru-made Toyota 86 sports car. The company is recalling vehicles to repair an engine part that could cause stalling and could take 12 hours to perform. * SO WHAT? * This is worse for Subaru than it is for Toyota as Toyota’s vehicles only account for 80,000 out of the 400,000 to be recalled. Subaru’s operating profit expectations have almost been cut in half to take into account the recall costs and the company promised more detail to come. As long as this doesn’t escalate and more problems don’t occur you would have thought that this admission will put a line under the recall impact. Let’s hope for Subaru’s sake that there are no more surprises.



In real estate news, we continue to see the north/south divide in UK property prices and WeWork ditches the bottomless beer…

There were two separate reports out that commented on UK house prices. House prices in north of England forecast to rise fastest in next five years (The Guardian, Julia Kollewe) cites data from Savills, the posh estate agent, which predicts that property prices will rise fastest in the north-west of England over the next five years, by 21.6% and Property prices growing at slowest rate for five years (Daily Telegraph, Sophie Christie) looks at data from Nationwide, the mortgage lender, which shows that uncertainty about the economy and tightening household budgets is taking its toll. * SO WHAT? * This just tells us what we already know – that consumers are getting increasingly reluctant to fork out huge amounts of money at a time of economic uncertainty. I’m not entirely sure as to what the catalyst is going to be for strong house prices oop north, but maybe its just a case of playing catch-up with the south.

Some of you may be aware that WeWork offices have offered tenants in their serviced offices free beer as part of the whole trendy shared-office vibe. Well WeWork puts four-beer limit on once-bottomless kegs (Wall Street Journal, Eliot Brown) shows that the (beer-fuelled) good times are coming to an end as it has started to limit the amount of free beer on offer. WeWork, which was founded only eight years ago, leases big office spaces from landlords and then sublets them to start-ups and divisions of large companies. The beer thing has been part of its culture from the off and some are saying that the limits are being imposed to appeal more to the larger customers who may have been scared off by the party culture the free beerage has engendered. * SO WHAT? * I think this is just a case of a company growing up. Bad behaviour is bound to follow the provision of limitless amounts of alcohol (resulting in needless and expensive litigation) and so this could actually help to broaden WeWork’s appeal. At the end of the day, if you’re a tenant who likes beer, I say just go to the pub like anyone else! Breakout areas feeling less like a frat party should definitely help to attract more tenants and stimulate continued growth.



In individual company news, Starbucks unveils stronger sales and Patisserie Valerie survives…

Starbucks satisfies investors with stronger sales, but traffic still weak (Wall Street Journal, Julie Jargon) signals some good news for the coffee giant as higher prices helped it to deliver its strongest quarterly sales gain in over a year, but its domestic market continues to look quite sluggish in terms of attracting more customers. The new chief exec Kevin Johnson is concentrating on finding the preferences of more visitors so the company can better target them with offers that coincide with their ordering behaviour via its mobile app and its loyalty programme. He’s also trying to rejig how his employees spend their

time so they can better focus on customer service as well as experimenting with healthier Frappuccinos and closing underperforming stores in crowded areas with high rents. The company is also slowing the growth of licenced stores in airports and supermarkets. * SO WHAT? * I think that all these measures show Starbucks’ admirable attention to detail and willingness to really focus in on what its customers really want. Charging higher prices will help them for a bit, but giving customers more of what they crave is what is really going to power the company IMHO.

Just to square off a story that’s been going on for the last three weeks, Patisserie Valerie £15m rescue deal is approved (Daily Telegraph, Oliver Gill) shows that the troubled baker managed to get shareholder approval for a vital bail-out yesterday amid a heated general meeting yesterday. One shareholder said “Why are you holding a gun to our heads?”, to which the company’s executive chairman Luke Johnson replied, “This was the only solution we could come up with”. Nice. The rescue package was approved by 99% of investors.



…And finally, in other news…

I thought I’d leave you today with ideas for bonfire night in Boris Johnson effigy to go up in flames on bonfire night in Edenbridge (Sky News, There are various examples of previous celebs who have gone up in flames over the years – and it’s not just politicians who get the heat treatment!

As always, thank you for reading Watson’s Daily!

Some of today’s market, commodity & currency moves (as at 0753hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq *DAX *CAC-40 *Nikkei **Shanghai **
7,115 (-0.19%)25,381 (+1.06%)2,740 (+1.06%)7,43411,469 (+0.18%)5,086 (-0.15%)22,212 (+2.47%)2,606 (+0.13%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)