Monday 18/11/19

  1. In MACRO & OIL NEWS, UK house prices fall and Saudi Aramco’s IPO ambitions get a reality check
  2. In TECH NEWS, Google’s Stadia has big plans, ByteDance launches music streaming, Yahoo Japan confirms merger talks with Line and HP rejects Xerox’s offer but sounds open to a higher price
  3. In CONSUMER GOODS NEWS, Johnson & Johnson rushes to prove its Baby Powder doesn’t contain asbestos 😱 while Nike’s snub of Amazon could prompt more to do the same
  4. In OTHER NEWS, I bring you some ideas for nights out…



So UK house prices weaken ahead of the election and Saudi Aramco gets a reality check…

Fall in UK house prices as election keeps homes off the market (The Guardian, Zoe Wood) cites the latest findings from Rightmove which show that the number of new properties coming on the the UK housing market is falling at its steepest rate since August 2009 as potential sellers stay on the sidelines ahead of the forthcoming general election. Average prices fell by about 1% in November and new listings dropped by almost 15%. * SO WHAT? * The property market tends to slow down going into Christmas anyway, but the general election is providing additional reason for sellers not to do anything. It seems to me that there are a number of pent-up sellers out there that would be unleashed in the new year especially if the new government decides to reform stamp duty to reduce moving costs. Given what has been happening recently

with the property market, it would be an easy win for a new government to get it moving again by doing something like reducing stamp duty.

In Saudi Aramco pares back IPO on weak foreign demand (Financial Times, Simeon Kerr and Anjli Raval) we see that the state-owned oil giant has had to reel in its ambitions considerably for its Initial Public Offering (IPO) due to limited interest from foreign investors. It had once hoped to raise $100bn from the listing but is now aiming to raise $24-25.6bn for 1.5% of the shares, equating to a valuation of $1.6-1.7tn for the whole company. This would still comfortably make it the biggest listed company in the world, but doesn’t reach the $2tn valuation that Crown Prince Mohammed bin Salman wanted originally. He had initially planned to float 5% of the company as part of long-term plans to wean Saudi Arabia off oil revenues. * SO WHAT? * Plans for an IPO roadshow in the US and Japan have been canned and the company’s attention will instead turn on domestic retail investors, Saudi funds and other sovereign funds. It seems that foreign investors weren’t tempted by guaranteed chunky dividends after all!



Google has big plans for Stadia, ByteDance moves into music streaming, Yahoo Japan and Line confirm merger talks and HP rejects Xerox’s opening move…

Google’s Stadia takes aim at $130bn video game market (Financial Times, Tim Bradshaw and Richard Waters) highlights the upcoming launch tomorrow of Google’s game-streaming service that aims to give a console-quality gaming experience to gamers-on-the-go via powerful servers. Stadia will launch with 10 computer games across 14 countries, with at least 12 more to come by the end of the year. * SO WHAT? * This is indeed exciting news, but it is bound to be a very expensive venture for Google and not without risk given that it has b*gger all content compared to rivals such as Sony (which already has its own games streaming service, PlayStation Now) and Microsoft (which is due to launch its streaming service, xCloud, next year with over 50 titles). In the short term, wider availability of affordable 5G for the necessary streaming speeds is needed to make this an attractive proposition and games creators will need to be convinced that they will be able to monetise their efforts from streaming before going all in. Longer term, if game streaming takes off, the potential market is huge when you consider that, currently, there are estimated to be 200-250m console players globally across all the consoles versus 2.5bn people who play games across all platforms. Game streaming could reach markets that have been difficult thus far for console makers (e.g. India), but obviously these places are going to need the internet speeds required to make the experience an attractive one. Exciting times ahead, but it’s early days at the moment!

ByteDance to take on rivals with music streaming launch (Financial Times, Anna Nicolaou) heralds in an interesting development for the Chinese company behind TikTok as it is in talks with the world’s biggest record companies – Universal Music, Sony Music and Warner Music – for licencing content on its new music streaming service. The new service could launch as early as next month in countries such as India, Indonesia and Brazil before rolling out in the US sometime thereafter. The company wants to differentiate itself from the likes of giant rivals including Spotify, Tencent and Apple by focusing on user-generated

content. * SO WHAT? * This is really interesting news and I think that music executives will be pleased at the arrival of a new player – along with the fact that ByteDance could give them access to over 1bn users that they want to tap into. Although nothing is finalised, it is thought that the new service will be priced below the $10 a month for Spotify and others in the US. It’s good that ByteDance is branching out IMO, but this is likely to be a very expensive move. At least it has a different angle on the music experience, but then again I think that content will be key and if it has way less music than the others, this venture won’t fly as the quality of rival offerings will be hard to follow. The other problem is that ByteDance’s domestic market in China is not used to paying a subscription for music. Tencent Music has 800m users in China, but fewer than 5% of customers actually pay for it! ByteDance will have to do something special to change the narrative!

Following on from last week’s rumours about Yahoo Japan and Line, Yahoo Japan and chat app Line agree to merge (Wall Street Journal, Takashi Mochizuki) shows that the two companies have agreed terms to merge in a 50-50 joint venture. They want to optimise each other’s user bases to expand their online businesses in shopping, payment services and advertising-supported content and are expected to finalise a deal next month. The companies said that they want the enlarged company to become “one of the world’s leading artificial intelligence technology companies” using AI to optimise marketing, e-commerce and digital payments online. * SO WHAT? * This is likely to be a boost for both companies in their domestic market, but is unlikely to move the needle that much for the major global players like Google and Amazon who already have very entrenched positions that will be hard to match outside Japan.

HP rejects Xerox offer but remains open to a deal (Wall Street Journal, Cara Lombardo) shows that HP has rejected a $33bn unsolicited takeover offer from Xerox as being too low but said that it would still be interested in pursuing a combination with its smaller rival. * SO WHAT? * Interestingly, the share prices of both companies have gone up since the rumours surfaced, which suggests that investors are open to the idea – and it certainly seems to make strategic sense in that the businesses are largely complementary. Xerox makes big printers and copy machines while HP specialises in smaller printers and printing supplies. It certainly sounds like a deal is there to be done – the two sides just have to hammer out details (unless someone else comes along, of course!).



Johnson & Johnson is quick to exonerate its Baby Powder and Nike’s rejection of Amazon could embolden others…

J&J rapidly tested its baby powder after asbestos finding – and the results were complicated (Wall Street Journal, Peter Loftus) highlights the quick action taken by J&J after the US Food and Drug Administration found asbestos in a bottle of Baby Powder last month, prompting a recall. The company said 11 days later that independent testing found no trace – but it wasn’t quite as simple as that as lab tests had mixed results. Fun fact: talc (the basis of talcum powder) is a naturally occurring mineral that can often be found near asbestos in the earth and the former can be contaminated with the latter if the mines aren’t chosen carefully or if the talc isn’t purified enough – hence the problem. * SO WHAT? * Although Baby Powder only makes up 1% of total sales, asbestos allegations could have big

repercussions for the company given how well-known it is. When you are also facing lawsuits with almost 100,000 plaintiffs over product safety and marketing, including 16,000 alleging that the powder caused ovarian cancer, clearly you want to address this issue as quickly as possible. This is going to drag on – so is definitely worth watching considering the implications it could have.

Nike has fired the starting gun in race away from Amazon (Daily Telegraph, James Titcomb) suggests that Nike’s recent decision to stop selling on Amazon could embolden other brands to follow suit as efforts by Amazon to stop fakes or copycats have fallen short by many companies’ standards. Birkenstock stopped selling on Amazon in 2016 for this reason and there have been others. * SO WHAT? * Nike is lucky in that it has a strong name of its own. Others may not be so fortunate and will continue to have to rely on the e-tailing giant despite the fact that some say that it promotes its own-brand goods above others and exploits the sales data itself to gain unfair advantage. If this is a one-off, then it is no real problem for Amazon – but if others abandon it as well and this becomes a trend, Amazon will have to do something to stem the outflow.



And finally, in other news…

We’re getting to that time of year when people start thinking about social activities in the run-up to Christmas – and I thought I’d leave you with a few ideas in Ball pit, anyone? The top 10 alternative nights out (Metro, I think that an evening of axe-throwing sounds quite therapeutic but what do you think??

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Some of today’s market, commodity & currency moves (as at 0837hrs 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 **
7,297 (+0.06%)27,975 (+0.76%)3,118 (+0.71%)8,54113,230 (+0.38%)5,935 (+0.57%)23,417 (+0.49%)2,909 (+0.62%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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