Tuesday 30/04/19

  1. In TECH NEWS, Samsung and Google disappoint while Spotify hits 100m paying subscribers
  2. In LEISURE/RETAIL NEWS, Marriott takes on Airbnb and Airbnb takes on hotels while UK shopping centre investment sinks to 16-year lows
  3. In INDIVIDUAL COMPANY NEWS, Andarko moves to accept Occidental’s offer, a major Boeing customer threatens to go to Airbus and massively loss-making WeWork files for an IPO
  4. In OTHER NEWS, I bring you Japan’s first micropig-themed cafe. For more details, read on…



So Samsung and Google fall short while Spotify hits a new milestone for paying customers…

Samsung’s profit falls amid delays for Galaxy Fold phone (Wall Street Journal, Timothy W.Martin) highlights a chunky 57% fall in first quarter net profit as a global slowdown in spending has tempered demand for its data server and smartphone memory chips. This is the company’s lowest net profit figure since the third quarter of 2016 when it had to issue a recall of its Galaxy Note 7 handsets due to overheating batteries. Margins also dropped from 36% a year ago to 25% and then there’s the whole embarrassing debacle of the flimsiness of its $2,000 phone, the Galaxy Fold. It was scheduled for an April 27th release but has been postponed, potentially opening the door for Huawei to get its folding phone to market first. * SO WHAT? * Samsung got about 75% of its operating profit from semiconductors in 2018, so the fact that prices for its main chips – DRAM and NAND Flash – have fallen by about 20% in the first quarter of this year has hit hard. However, Samsung’s share price has actually risen by 19% this year on the belief that chip prices have bottomed out. Although the Fold thing is a pain, actually the company acted before the phone was properly released and they were never going to sell in big numbers anyway because of the price tag. I’m sure it’ll be fine when they get the problems sorted and other phones in the range will benefit from a halo-effect of the flagship product.

Google misses Wall Street Forecasts (Daily Telegraph, Margi Murphy) shows that Google’s parent company, Alphabet, reported a fall in profits and missed forecasts as it felt the effects of that chunky €1.5bn fine from the European Commission imposed last month for its Adsense advertising division breaching EU competition rules. * SO WHAT? * The company has been spending money on expanding employee numbers of late and so it would have made a loss anyway – without the fine. The shares were off about 5% after trading on the news, but the good thing is that ad revenues were up. This sounds like a blip to me.

Then there was some altogether more positive news in Spotify reaches 100m paying subscribers worldwide (The Guardian, Jasper Jolly and Mark Sweney) as the music streaming company continues to grow despite increased competition from the likes of Amazon, Apple, YouTube and Tidal. Numbers of paying users for Spotify increased by 32% in the first quarter of this year versus the same quarter last year. * SO WHAT? * This is great news and the company is continuing to evolve as it signed a deal with Samsung in March to pre-install its app on devices and recently launched in India in a bid to get a foothold in a potentially very lucrative market. The company said that over one million users in India signed up in launch week and the subscriber numbers have since more than doubled, although failed negotiations with India’s oldest record label will mean that 120,000 songs from Indian artists and Bollywood film soundtracks are about to be pulled. The company has also been buying up podcast firms Parcast, Gimlet and Anchor as founder Daniel Ek believes that, in future, up to 20% of all listening on Spotify will be non-music content.



Marriott looks to encroach on Airbnb’s turf while Airbnb dabbles with hotels while UK shopping centres see investment falling off…

Marriott to take on Airbnb in booming home-rental market (Wall Street Journal, Craig Karmin) heralds a new direction for the world’s biggest hotel operator as it has seen what Airbnb has done and wants a piece of the action. The company announced that it will be offering accommodation in around 2,000 high-end homes in 100 markets across the US, Europe and Latin America from next week. In doing this, it will become one of the first major hotel companies to create a US home-rental platform and guests will be able to book reservations via the Marriott website, earning and redeeming reward points. On the other hand, Airbnb has long-term hopes for hotel deal (The Times, Tom Knowles) shows that there’s interest going the other way as Airbnb has got together with RXR, a property developer, to convert ten floors of a skyscraper in the Rockefeller Centre in New York into “high-end apartment-style suites”. RXR will be responsible for renovation and room management while Airbnb’s platform will be used for marketing and booking. * SO WHAT? * While Hilton Worldwide Holdings and Hyatt Hotels have

also been looking at doing something similar, Marriott has actually gone ahead and executed. It’s interesting to see that the offerings of Airbnb and a major hotel group are starting to overlap, but I think that if you believe that the global economy is entering a downturn Airbnb would be the more defensive place to invest because it has more exposure further down the scale, isn’t paying for having empty rooms and owns less property.

Talking about downturns, UK shopping centre investment hits 16-year low (Financial Times, Judith Evans) is a sign of the times as only £20m of shopping centres were bought and sold in the first quarter of this year, according to the latest data from CoStar, versus a ten-year quarterly average of £783m. Mark Stansfield, head of UK analytics at CoStar, said that it was the weakest quarter since 2003 and “probably this century” as the retail landscape continues to change due to shopper behaviour and Brexit uncertainty. * SO WHAT? * Retail property has historically been a core holding in many a real estate investor’s portfolio but this resolve has wobbled in the face of major retailer tenant withdrawals (e.g. the likes of Debenhams, House of Fraser – and now Arcadia) and the proliferation of CVAs across the whole sector. I think that the general consensus here is that there is worse to come before the situation improves. There’s going to be a whole load of space to fill in future as retailers continue to abandon physical presence in malls and on the high street.



Andarko looks likely to accept the Occidental offer, a major Boeing customer threatens to go to Airbus and WeWork is the latest massively-loss-making company to eye an IPO…

Andarko set to accept $55bn offer from Occidental (Financial Times, James Fontanella-Khan, Eric Platt and Ed Crooks) signals what will probably be a swift conclusion to M&A drama in the shale sector as Andarko looks set to accept the hostile bid from US rival Occidental Petroleum that trumped the original $50bn bid from Chevron. * SO WHAT? * Hostile bids aren’t always successful, but in this case “Oxy” offers more cash than Chevron’s original offer. It’s unclear whether Chevron will make a counter offer – but the prize up for grabs is Andarko’s vast portfolio in the Permian Basin, the most productive shale oil deposit in America.

The Boeing saga continues in Major Boeing customer threatens to switch to Airbus (Financial Times, Patti Waldemeir, Simeon Kerr and Sylvia Pfeifer) as the chief exec of Emirates airline, who also happens to be president of Dubai’s Civil Aviation Authority, said he would seek compensation for the grounding of 14 737 Max aircraft at

its low-cost sister airline Flydubai. The latter has over 230 on order and the chief exec threatened to order Airbus planes as replacements. * SO WHAT? * I’m not really sure whether this threat can be carried out, but it will certainly be a headache for Boeing if everyone starts doing the same thing. The pressure continues and it looks like the job of Boeing’s defiant chief exec, Dennis Muilenburg, will be on the line. 

I think that the IPO market is going crazy at the moment with one massively loss-making company after another scrambling to list on the stock market. WeWork files for New York listing despite $2bn losses (Daily Telegraph, Laurence Dodds) shows that the short-term office rental company, which was most recently valued at $47bn, last night said it had filed the paperwork for a listing back in December, enabling it to list if “market and other conditions” allowed. * SO WHAT? * OK, so this company burns cash ridiculously quickly and does something that has low barriers to entry (assuming you’ve got enough money to buy and invest in properties), but the thing is that it has physical tangible assets and some massive backers. If things just go down the toilet, there will at least be stuff the company can sell and its investors have deep enough pockets to cover any minor blips. I don’t like this company, but it’s not as bad as some of the others that have listed recently.



And finally, in other news…

Turn up the cuteness factor to 11 because Japan’s first-ever micro pig cafe opens in Tokyo (SoraNews24, https://tinyurl.com/y6a7ur7q). OMG. It’s almost cute enough for me to give up bacon sarnies ????. Almost.