Wednesday 12/02/20

  1. In CARS’N TAXI NEWS, Daimler announces its worst profits in a decade, Uber fails in its California challenge and Lyft announces losses as it focuses on profitable growth
  2. In TELEPHONE-RELATED NEWS, the T-Mobile/Sprint deal gets the green light and Samsung unveils new phones
  3. In RETAIL NEWS, Ocado announces a big loss, JD Sports encounters Footasylum problems and Intu hits a major hurdle
  4. In INDIVIDUAL COMPANY NEWS, Mastercard wins approval for China, N26 exits the UK, Airbnb announces losses and Tui gets a bookings boost
  5. In OTHER NEWS, I bring you a “David vs Goliath” sumo match…



So Daimler has a shocker, Uber fails in its legal challenge and Lyft has losses in its bid to concentrate on profitable expansion…

Profits at Mercedes-Benz owner Daimler fall by €5bn (The Guardian, Jasper Jolly) highlights a shocking performance by the German automaker. Its profits fell by nigh on two-thirds in 2019 to their lowest level for a decade as “dieselgate” legal costs and big investment in EVs caught up with it. Daimler’s van division suffered particularly acutely due to legal costs. * SO WHAT? * The company has already announced big job cuts (at least 10,000 employees, mainly in management) in November as part of a bid to slash over €1bn in costs, but it continues to face the same problems as all of its rivals: sluggish car sales globally, higher overheads in meeting tighter emissions regulations and new technology targets – and now the coronavirus hitting its supply chain. The chief exec, Ola Kallenius, has already announced over four profit warnings since he took over last year and things don’t look like getting better any time soon. 

Then in the world of ride-hailers, Uber fails to block California gig economy law (Financial Times, Dave Lee) heralds the latest blow for Uber as a Los Angeles judge (called Dolly Gee – what a great name!) upheld the newly-introduced Assembly Bill 5 (aka “AB5” – I know, sounds like a new South Korean boy band 😂), which gives gig economy workers more robust employment rights. Uber had sought, with co-plaintiff Postmates, to get a preliminary injunction to stop the enforcement of AB5 while the challenge went through the courts. * SO WHAT? * You

will probably recall that Uber is trying to classify its employees as “contractors”, meaning that it would NOT have to provide benefits normally associated with “employees” (e.g. sick pay, holidays etc.). Uber and Postmates said that reclassification of their employees could add 20% to their labour costs, so you can see why they are trying to fight this. Gig economy companies around the world will be watching developments here very closely because it could have massive implications for their cost bases.

Meanwhile, Lyft’s net loss widens as it focuses on profitable growth (Wall Street Journal, Preetika Rana) heralds bigger losses for the latest quarter but the company maintains that it will hit profitability by the end of this year. Although net losses were larger, revenues actually came in above market expectations due to more corporate partnerships that drove repeat custom and better revenues per ride. Lyft aims to achieve profitability by cutting out discounts and it is also making significant reductions in the proportion of revenues it spends on sales and marketing. * SO WHAT? * Uber recently brought forward its timetable to profitability from the end of 2021 to the end of this year, bringing it in line with Lyft. I think this is probably good news for Lyft because at least Uber is less likely to undercut it by continuing to subsidise rides. I actually quite like Lyft as a ride-hailer because it doesn’t try to be all things to all people and it is concentrating its efforts geographically rather than casting its net too wide (“just” the USA and Canada, unlike Uber). Overall, there is one major thing that could derail its plans to reach profitability – and that’s further developments in the fight against the aforementioned AB5 legislation, that would increase overheads and potentially push profitability into next year.



T-Mobile and Sprint deal gets the go-ahead and Samsung unveils new phones…

T-Mobile, Sprint deal wins approval, reshaping industry (Wall Street Journal, Drew Fitzgerald and Sarah Krouse) highlights the approval of T-Mobile’s takeover of Sprint, worth $26bn when it was initially announced two years ago, after 13 states and the District of Columbia got together to stop the deal arguing that it was anti-competitive. The judge disagreed and waved the deal through, leaving wireless customers with a choice of three network operators: Verizon, AT&T and now T-Mobile. Sprint shares shot up by a whopping 78% on the news. * SO WHAT? * T-Mobile and Sprint have been trying to merge in some way or other for the last seven years. Now they are together, T-Mobile is hoping to benefit from Sprint’s

wireless radio licences, which will enable it to serve more customers with fast mobile broadband as everyone upgrades to 5G.

I mentioned this in Monday’s Watson’s Daily pre the launch but Samsung unveils new lineup of smartphones (Wall Street Journal, Elizabeth Koh) comes after the event and describes all the features and gizmos on the new handsets. It unveiled three models of its Galaxy S (different screen sizes) and the foldable Galaxy Z Flip. The S models are 5G compatible, but the Z-Flip isn’t. * SO  WHAT? * The world’s #1 smartphone maker is clearly trying, with its latest line-up, to tempt customers with its new gadgetry (whilst also bumping up handset prices!), but this is all against a backdrop of buyer apathy as global smartphone sales slipped by 1% last year, according to Counterpoint Research. As I keep saying, I think that people will be buying their next phones with 5G in mind and so I expect handset sales to increase from here as more people upgrade.



Ocado posts a hefty loss, JD Sports gets fired up and Intu hits a problem…

Ocado posts £214m loss as it ramps up spending on logistics (Financial Times, Jonathan Eley) highlights a quadrupling in losses last year as it had to take a hit on its warehouse fire as well as an increase in investment. On the other hand, its incredible share price performance (due largely to it being re-rated in investors’ eyes as a tech stock rather than a retail stock) unlocked an £87m pay bonanza for its senior directors. The company said that losses could deepen this year as it continues to fit out new distribution centres for itself and its clients. * SO WHAT? * It sounds to me like the company is doing the right things and will be seeing a nice inflow of money once their facilities come online. OK, so it’s not going to be immediate, but they’ve signed some big deals and will hopefully sign more as well to keep the momentum going. There are tough barriers to entry in this business and Ocado’s tech is clearly highly rated by retailers. I would expect more to sign up in order to compete with the likes of Amazon etc.

Meanwhile, JD Sports may be forced to sell Footasylum after competition probe (Financial Times, Myles McCormick and Kate Beioley) is a story that’s been doing the rounds this morning as the UK competition regulator,

the Competition and Markets Authority (CMA) announced that the £90m acquisition “substantially lessens competition” in sports-inspired clothing and footwear. JD Sports may be forced to sell Footasylum as a result. JD Sports has a March 3rd deadline to meet in order to give its views and the CMA will give its final decision on May 11th. * SO WHAT? * JD Sports is obviously kicking up a fuss because it says that the CMA isn’t taking into account increased online competition, but we’ll just have to see what happens.

There’s more bad news for the retailer landlord in Intu future in question after investor backs out (The Times, Louisa Clarence-Smith) as Hong Kong-listed investor Link Real Estate Investment Trust has pulled out of talks to become a cornerstone shareholder in an emergency £1bn fundraising due at the end of this month. Intu owns 20 shopping centres in Britain and Spain is trying to raise money to reduce its hefty £4.7bn debt pile as the value of its properties continue to plummet due to ongoing retailer failures. Intu’s share price fell by 30% on the news as it said that it “remains engaged with shareholders and potential new investors”. As the saying goes, this stock looks like a dog – with fleas. * SO WHAT? * Options are running out for Intu and pressure is building to take it private so that it can do the required dramatic restructuring behind closed doors. This is a major blow not just for Intu – it signals a warning to its rivals that if they don’t get themselves sorted, they could go down the same road.



Mastercard gets a China go-ahead, N26 makes an escape, Airbnb suffers loss and Tui takes advantage…

In a quick scoot around some of the other major stories in today’s business news, Mastercard wins approval to enter Chinese payments market (Financial Times, Tom Mitchell) heralds an important development for the company as its application to launch a joint venture with a local company has finally been approved. This could be the start of similar moves by Visa and American Express in future.

On the other hand German digital bank N26 leaves UK market, blaming Brexit (The Guardian, Kalyeena Makortoff) highlights an exit from a market – the UK one – as the digital bank has blamed Brexit. It has over 200,000

UK accounts and will be giving customers until 15th April to close them only 18 months after entering the market! It was hoping to use its passporting rights from its German licence to operate in the UK, but that has now gone out of the window.

In the world of holidays, Airbnb swings to a loss as costs climb ahead of IPO (Wall Street Journal, Jean Eaglesham, Maureen Farrell and Kirsten Grind) highlights a $322m loss for the nine months to September due to sharp rises in costs. This isn’t going to be particularly helpful for its widely-expected IPO sometime this year. Maybe it’s just getting this bad news out of the way first, but you’d think that there’s more to come as the effects of the coronavirus on bookings may yet dent the company’s fortunes…

Then in Tui booking bosst after Thomas Cook crisis (Daily Telegraph, Simon Foy) we see that the company saw record demand for holiday bookings in the wake of Thomas Cook’s collapse last year. Its share price rose by 13% to be the FTSE100’s biggest riser yesterday.



And finally, in other news…

I love it when the little guy teaches the big guy a lesson – so The bigger they are… Smallest top sumo wrestler takes on yokozuna with amazing result (SoraNews24, Casey Baseel definitely caught my eye! If you can’t see the video in the story, click on this to see it. Impressive!

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Some of today’s market, commodity & currency moves (as at 0720hrs 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 **
7,499 (+0.71%)29,276 (unch)3,332 (+1.06%)9,63913,628 (+0.99%)6,054 (+0.62%)23,861 (+0.74%)2,923 (+0.74%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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