Friday 26/10/18

  1. In CIGARETTES AND ALCOHOL NEWS, Altria is pulling most vaping products in the US and Budweiser brewer suffers a massive hangover
  2. In SOCIAL MEDIA NEWS, Twitter shares fly and Snap gets better at monetising
  3. In RETAIL NEWS, Amazon unveils record quarterly profits, Debenhams slims down for survival and Halfords backs away from the bidding for Evans
  4. In INDIVIDUAL COMPANY NEWS, WPP has a shocker
  5. In OTHER NEWS, I bring you an invention to help dads breastfeed (!) and a home-made attempt to recreate the Haribo ad. For more details, read on…



So Altria moves away from vaping and Budweiser’s brewer tries to reduce its huge debt…

You may recall that I referred to a story about a month ago that the FDA was looking at cracking down on vaping. Well Malboro maker to pull ecigarette pods from market (Financial Times, Alistair Fray and Camilla Hodgson) shows the effect as Altria, which makes Malboro cigarettes and is the parent company of Philip Morris US, has decided to stop selling most flavoured vaping products in the US following US Food and Drug Administration (FDA) threats to ban all such products due to “epidemic” levels of teenage vaping. * SO WHAT? * The future of vaping, in the US at least, sounds uncertain as the FDA said in a

statement that “The agency has taken a number of steps to address the growing epidemic of youth ecigarette use and will be taking additional action very soon”. TBH, this is no great shakes for Altria because vaping products only account for a very small percentage of its current offering and the ecigarette market as a whole, which is dominated by the start-up Juul Labs. However, there is obviously the possibility that other countries will look at the lead the US is taking and potentially follow suit.

In Budweiser brewer halves its dividend to pay down debt (Daily Telegraph, Oliver Gill) we see that shares in the world’s #1 brewer, Anheuser-Busch InBev, fell to a five-year low after it cut its dividend in half to pay back some of the eye-wateringly large $109bn in debt that it accrued as a result of its 2016 deal to buy its South-Africa-based rival SABMiller. * SO WHAT? * The shares fell by 11% overnight on the news, but given that this dividend cut will free up “only” $4bn a year, there’s a lot more the company has to do in order to put a proper dent in that $109bn number.



In social media news, Twitter surprises on the upside and Snap sees a solid rise in revenues…

Twitter shares climb 18% after profit tops forecasts (Financial Times, Shannon Bond) highlights positive investor reaction to the company’s better-than-expected third quarter revenues on the back of improved advertising sales. It is interesting to note that this happened despite there being a record drop in the number of monthly users, but as Pivotal Research Group’s analyst Brian Weiser pointed out, “Investors need to come to appreciate that a reduction in the user base might be a very positive thing if they are eliminating not only inauthentic accounts but hateful accounts. The more aggressive they are at doing that, the more advertising-friendly a platform Twitter will become”. Twitter itself said that the monthly drop was due to the reduction of bots and trolls as well as the impact of GDPR. * SO WHAT? * IMHO, Twitter should have purged the trolls and spam long ago – but better late than never, I guess. I would have thought that this will make Twitter a much nicer place to be and something that advertisers will feel increasingly comfortable associating with, meaning 

that it will become increasingly revenue-generative. The only tiny concern I have in my mind is how Twitter can ensure that it continues to be relevant and that it doesn’t lose its place to some funky new start-up or a rival with deep pockets.

Funnily enough, Snap loses users but wrings more money from those who stayed (Wall Street Journal, Georgia Wells) shows another social media company that is seeing a downtrend in users but making more money as its revenues rose by 43% in the third quarter, exceeding market expectations. This is made all the more impressive because it is the second consecutive quarter since Snap came to market that its number of users declined as the effect of its much-derided relaunch in February, designed to broaden its appeal from its core teen and young adult audience, took hold. Having said that, the company expects even higher revenues for the next quarter. * SO WHAT? * I’ve said it before and I’ll say it again – IMHO Snap is a one-trick pony that consistently faces threats from rivals such as Facebook nicking its good ideas as well as the very real possibility that it could just lose its appeal to a fickle audience eager for The Next Big Thing. And what about Spectacles, eh?? The company has yet to make a profit as a publicly traded company but chief exec Evan Spiegel believes that it will achieve profitability in 2019. Hmmm.



In retail news, Amazon unveils record profits, Debenhams wants to get fitter and Halfords backpeddles on Evans…

Amazon unveils record quarterly profit of $3bn but share prices sink (The Guardian, Dominic Rushe) shows that announcing a fourth consecutive quarter of profits exceeding $1bn just wasn’t enough to satisfy Wall Street, which was more concerned about lower-than-expected revenue growth. Shares fell by 6% in after hours trading, but then again the shares had rocketed up by 49% so far this year – so I don’t think this is disastrous. Amazon Web Services, the company’s fast-growing cloud services business, was once more the star performer as its revenues surged by 45.7% to $6.7bn. * SO WHAT? * Amazon has had a very good run and I guess that it’s now at a stage where costs are going up what with self-imposed rising minimum wages on the one hand and increased spending on media as it vies with Netflix in streaming on the other. Mind you, giving the continued strength of its Web Services business and, to a lesser extent, its b2b Amazon Business segment you would have thought that momentum will continue, albeit at maybe a slightly slower pace.

Debenhams aims for fewer but better shops (Daily Telegraph, Jack Torrance) adds a bit more colour to what I was saying yesterday about Debenhams, as it announced an annual loss of almost £500m, a closure of 50 shops with potentially 4,000 jobs on the line. It also announced a

big cut in capital spending and increased efforts to cut costs. Former-Amazon-executive-now-chief-executive of Debenhams Sergio Bucher said that “We want to have fewer stores but better stores, we want to have investable stores, we want to have a bigger online business, and we want the whole lot to be more profitable”. No further detail has been given, as yet, to which 50 will close, but he said that they are “primarily located in fairly distressed shopping destinations…with empty units that have been under-invested in by landlords and local councils”. * SO WHAT? * I see nothing here to alter my opinion that Debenhams is in terminal decline. Although I often say that you can’t polish a t*rd, but you CAN roll it in glitter – I would say that in Debenhams’ case, the glitter is sadly lacking.

Halfords backpedals on Evans (The Times, Robert Miller) contends that Halfords has now pulled back from potentially buying Evans to leave the way clear for Mike Ashley’s Sports Direct to snap up the bike retail specialist. Evans is trying to raise millions to secure its future and Halfords had been seen as the main contender to do the decent thing, but it appears that this is no longer the case. No deal has been signed yet, so it’s still all up in the air for the troubled retailer. * SO WHAT? * I don’t know for sure about this, but maybe it was a timing issue as Halfords is itself facing tough times. TBH, I’d question the logic of two retailers exposed to a potentially cooling bicycle market getting together right now as, after the initial excitement of asset disposals and supplier consolidation, they’d still be in a market that seems to have peaked out. Rapha (which is at the “luxury” end of the scale in terms of bike related stuff) is also having problems, so Evans and Halfords aren’t the only ones struggling. It looks like Mike Ashley’s Bag of Retail Cr@p is going to get bigger soon…



In individual company news, WPP has a nightmare…

Profit warning knocks £2bn off WPP (The Times, Simon Duke) shows that the embattled media behemoth continues to have a tricky time of it months after the departure of founder Sir Martin Sorrell as it limps on in the face of the likes of Google and Facebook eating its lunch. WPP owns advertising, PR, media and market research companies including Ogilvy, J Walter Thompson, Young & Rubicam, Burson-Marsteller and Hill & Knowlton amongst others and has, according

to new chief exec Mark Read, been “slow to react to the changes that have been happening” in a fast-changing industry. The share price fell by 25% initially, but then recovered to end 14% down on the day. * SO WHAT? * Mark Read has inherited a massive oil tanker and he’s got to turn it into a speedboat before it gets sunk by Google and Facebook torpedoes. The stakes are high and he won’t be able to achieve this overnight, but I suspect he will continue to dispose of non-core assets in order to shore up and improve the main advertising business. All this tinkering is very well, but the fact is that advertising newbies are turning the market on its head and WPP can no longer rely on its size and diverse interests to survive for the long term. Fundamental change is needed and it’s just not cutting it at the moment. I suspect that there will be more industry consolidation to come.



…And finally, in other news…

I thought I’d leave you with a rather unusual invention in Dads may soon be able to breastfeed their newborn babies with first ever ‘chestfeeding kit’ (The Mirror, Courtney Pochin the homespun efforts of a few guys trying to recreate the Haribo advert in this LadBible video Something to recreate at the weekend perhaps??

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

Some of today’s market, commodity & currency moves (as at 0839hrs 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 **
7,004 (+0.59%)24,985 (+1.63%)2,706 (+1.86%)7,31811,307 (+1.03%)5,032 (+1.60%)21,238 (-0.11%)2,601 (-0.10%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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