Monday 19/11/18

  1. In TECH NEWS, we look at FAANG weakness and what’s next for Apple
  2. In INDUSTRY SECTOR NEWS, Russian oil groups make a killing, Big Tobacco squares up on menthol and UK retailers ready themselves for Black Friday
  3. In INDIVIDUAL COMPANY NEWS, Ofo highlights the risks faced by start-ups
  4. In OTHER NEWS, I bring you a fragrant darts match and some close magic. For more details, read on…



So FAANGS lose their teeth and Apple veers downwards…

Taking toll of tech’s tumble (Wall Street Journal, Michael Wursthorn) takes a quick look at the FAANG stocks that have been taking a beating of late. Facebook has been the worst performer in the group, falling 21% so far this year thanks to various accusations of how it handles user data; Amazon shares have fallen 20% in October alone as a second consecutive quarter of record profitability was not enough to quell investor fears of slowing revenues; Apple is brushing with bear territory having fallen at least 20% from a recent high following uninspiring revenue forecasts (and that thing about them not publishing unit sales figures going forward – which makes investors think that the company is feeling iffy); Netflix suffered a bit of a decline in July when it published weaker-than-expected subscriber growth which then continued in October; Alphabet has also been a bit meh as growth seems to be coming off the boil. With Apple near a bear market, stocks lack a clear leader (Wall Street Journal, Amrith Ramkumar) discusses the possibility that we are entering a period of transition as FAANGs aren’t currently the go-to stocks they once were and that Apple in particular has lost its shine as the pick of the bunch following its recent lacklustre revenue forecast. * SO WHAT? * Although Apple has lost its $1tn market cap crown, it still makes up about 4% of the S&P 500 and about 5% of the Dow Jones Industrial average, so you can understand why people are tearing their hair out. Is clock ticking for Apple and the iPhone? (The Times, James Dean) talks about “peak iPhone” and lack of Next Big Thing 

as being the main drags for the company in the near-term, especially since current CEO Tim Cook is seen to be more of a refiner rather than Steve Jobs, who was seen as the creative whirlwind at the company’s beating heart. Jacking the prices up of its iPhones has helped to raise the average selling price of an iPhone, which investors like, but the actual number of units sold has been pretty flat. Apple bulls will say that the company is merely in a transition period where it is changing from being predominantly hardware-focused to being predominantly software-focused (i.e. getting more revenues from its services business like the app store etc.). That’s all very well, but unit sales still have to chug along to power growth (which is probably why Apple has said it will stop publishing them as it’s not very confident, despite all the rhetoric). I still think that wearables will give Apple a useful boost, but I think that the company needs at least one new and exciting main product that is a revolution rather than an evolution AND significant boosts in key growth markets – with China and India being countries that Apple needs to target. As far as China is concerned, I think that Apple’s fortunes will be tied to the whims of Presidents Xi and Trump in ongoing trade negotiations and, regarding India, Apple has to find a way of making money in a country that has extremely low average annual wages. Regarding the revolutionary product, could it be a bendy iPhone? Samsung talked recently about launching one in the next few months. As we all know, Apple has a reputation for not necessarily being the first to market with a new product – but waiting to see what others come up with and making it better. If the bendy phone proves to be a hit, unit sales could go through the roof as it would be the biggest design change for a mobile phone for years and could be the thing that breaks the lengthening phone replacement cycle.



In industry sector news, Russian oil producers are coining it in, Big Tobacco squares up for a menthol fight and UK retailers prepare themselves for Black Friday…

Given what’s been going on with the oil price recently, I thought that Russian oil groups hit sweet spot as profits surge (Financial Times, Natassia Astrasheuskaya) was quite interesting as it tells us how well Russian oil companies are doing at the moment as they’ve benefitted from rising oil prices and a plunging rouble which has sent their profits into overdrive. Alexei Bolshakov, general director of Citigroup Global Markets, pointed out that “They [Russian oil and gas companies] are having an absolutely fabulous year…they earn more per barrel than they did even during $100 a barrel oil prices. These guys have exorbitant profitability”. An increase in production quotas in accordance with Russia’s deal with Opec and non-Opec countries means that it has seen higher sales at higher prices. Rosneft (the world’s largest listed oil company), Novatek (Russia’s top independent gas producer) and Gazprom Neft (Russia’s #3 crude oil producer) have all seen rocketing net profits and pipeline expert Gazprom is widely expected to announced strong numbers on higher gas prices and increased supply to Europe. * SO WHAT? * Funnily enough, the companies are awash with so much cash, they don’t know what to do with it. Mind you, this problem may be short-lived as Rosneft – which accounts for about 40% of Russia’s oil production – plans on ploughing a the majority of this money into upstream projects and has a more downbeat outlook on the sustainability of current profit growth given recent oil price weakness. 

Following on from last week’s e-cigarette/menthol cigarette shenanigans, Big Tobacco prepares to fight proposed ban on menthol cigarettes (Financial Times, Alistair Gray and Andrew Edgecliffe-Johnson) shows that the tobacco majors are making moves to defend menthol cigarettes, which account for about a third of industry sales, and even the Federal Drug Administration’s head, Scott Gottlieb’s restrictions on e-cigarettes are not a 100% given as convenience stores are threatening a legal challenge arguing that the FDA is discriminating against different types of retailer. * SO WHAT? * The ban on menthol will be harder to implement as the FDA will need to provide more evidence to show they are more harmful than regular cigarettes, but health campaigners argue that menthol hides the taste of smoking and soothes the irritation, which makes menthol cigarettes more addictive and harder to give up. However, Big Tobacco has HUGE resources and will throw whatever it can to fight for its menthol revenues. This battle is only just starting. 

High street fears web firms will reap Black Friday benefits (The Guardian, Patrick Collinson) highlights the fears of high street shops that online retailers will be benefitting more from Black Friday than they will as the Springboard group, which tracks shopper numbers, predicts footfall will decrease by 3.7% versus Black Friday in 2017 and by 2.7% as a whole. Springboard made the interesting observation that “Pressure on spending and reduced disposable income will be further compounded by the fact that Black Friday is taking place a week earlier this year, meaning that many consumers will not be paid until the week after, possibly forcing them to delay spending or rely on credit, which is already at its highest since 2007”. * SO WHAT? * I get the feeling that Black Friday has lost its lustre since it first arrived on these shores five years ago. The reality has been that Black Friday cannibalises sales in the crucial run-up to Christmas and consumers are becoming more cynical as to how much of a bargain they are really getting. 



Bike-sharer Ofo provides some cautionary lessons for start-ups…

Bike-sharing service Ofo highlights risk for rival start-ups (Financial Times, Josh Spero) looks at the lessons that can be learned from Ofo’s rapid expansion and subsequent decline by other start-ups such as electric-scooter group Bird, that started a trial in London this month. This summer, Ofo sacked a ton of people and abandoned a number of locations to concentrate on London, Oxford and Cambridge. Mobike, an Ofo rival, has also suffered in the UK – with 10% of its orange bikes being damaged or stolen in July alone – and is now reducing its presence in London. * SO WHAT? * I know I 

am going to sound like a miserable old cynic here, but I think that these bikes are a fad and my feeling is that they just don’t deliver on providing a cheap, environmentally-friendly and sustainable way of moving around cities (what’s the cost of building them and recovering them from abandonment in canals etc, eh??). I think that there is only ever going to be a certain number of people who will be willing to ride bikes in the city and the scooter thing is a recipe for disaster in somewhere like London. If you’ve got a scooter that can go up to 15mph and you are riding it on a pothole-filled gutter on the main road, accidents are bound to happen. IMHO, nice idea, but the practicalities will be too much. TBH, I think that the best idea so far for this kind of thing is the original Boris Bike with fixed docking stations because at least then you can keep better track of where all the bikes are.



And finally, in other news…

Using underhand tactics to gain an advantage over one’s opponent under the microscope of sporting competition is nothing new, but I think that this shows a novel approach: Darts players let rip as they accuse each other of f@rting during match (Sky News, Ajay Nair Other than that, I thought I’d leave you with this: Man’s ‘amazing’ card trick is blowing people’s minds – and no one can work out how he did it (The Mirror, Courtney Pochin Impressive.

Some of today’s market, commodity & currency moves (as at 0830hrs 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 **
7,014 (-0.34%)25,413 (+0.49%)2,736 (+0.22%)7,24811,341 (-0.11%)5,025 (-0.17%)21,821 (+0.65%)2,685 (+0.22%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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