Wednesday 24/04/19

1. In ONLINE/STREAMING NEWS, Twitter, Snapchat and eBay put in strong performances while Amazon Prime’s momentum slows
2. In IPO/M&A NEWS, Starbuck’s China nemesis Luckin Coffee plans a US flotation, UBS and Deutsche Bank asset management talk about merging while bid rumours lift Thomas Cook
3. In INDIVIDUAL COMPANY NEWS, Google gets the go-ahead for delivery drones, Revolut faces losing its banking licence and Majestic Wines mulls its options
4. In OTHER NEWS, I bring you a really useful hat. For more details, read on…

So Twitter, Snapchat and eBay smash it while Amazon Prime’s momentum slows…

Forecast-beating results from Twitter and Snapchat (Daily Telegraph, Laurence Dodds) heralds strong performances from Snapchat and Twitter that helped power the Nasdaq and S&P 500 to new highs. Both companies posted solid revenues and user growth for the first quarter showing that they are gaining ground on Facebook and Google in advertising. Twitter’s chief exec Jack Dorsey was preaching to the converted when he said that the company was “taking a more proactive approach” to trolling, with a view to “reducing the burden on victims”. * SO WHAT? * This was a strong performance from both companies and shows that it IS possible for them to increase ad revenues despite the continued dominance of their more sizeable competitors in this space. What was particularly impressive was Snapchat adding 4m daily active users (from 186m to 190m) in the quarter – its first net increase for 12 months. Twitter also managed to arrest a decline in users over the last six months and add 8m more following a crackdown on abusive or fake accounts. Twitter’s share price got a 16% boost on the back of the news, while Snapchat’s rose 12% in after-market trading.

EBay lifts guidance as revenue, number of buyers rise (Wall Street Journal, Patrick Thomas) continues the feelgood newsflow as the company raised its revenue and profit forecasts after announcing stronger-than-expected first quarter results, with the number of active buyers on its

platforms growing by 4%. * SO WHAT? * This performance has come at a critical time for the company as it is currently undergoing an operational review following pressure from activist investors. This pressure followed a long period of weakness where the company continued to battle with Amazon and diversify away from being “just” an online auction house. EBay’s shares are up by 30% so far this year, but this is still down about 12% over the last 12 months. It doesn’t sound to me like they are going to do anything particularly drastic to boost performance (I would have thought this could change once they’ve finished the review) but investors will like the fact that the company plans to spend $5.5bn on share buybacks and dividends this year – they love a bit of this because it effectively underwrites a lot share price downside for a certain period of time.

Amazon Prime growth cools as battle with US rival Netflix ignites (Daily Telegraph, Hannah Boland and Natasha Bernal) highlights findings from UK research company Ovum which show that UK subscriber growth numbers are slowing down considerably from Amazon Prime. Germany and Japan have recently overtaken the UK in terms of market size for Amazon Prime and India and China are making ground up fast. Ovum analyst Tony Gunnarsson observed that “The reason why UK growth is slowing down is basically because, we think, after being available for several years in the UK, Amazon has reached the top side of how far it can penetrate UK households” and is now pushing other services and products like Fire TV, Echo devices etc. in preference to Amazon Prime. The streaming business is also being put under constant pressure by the likes of Netflix and others.

Huawei sticks two fingers up at the US, Samsung’s Fold woes and TikTok as a marketing tool…

In Chinese coffee start-up Luckin files for US IPO (Financial Times, Nicole Bullock) we see that the Chinese coffee start-up that’s taking on Starbucks announced plans to list in the US just days after raising $150m from investors as part of a funding round that valued the company at $2.9bn. No more details were given on price or the number of shares to be sold. Luckin Coffee aims to overtake the number Starbucks outlets in China by the end of this year by opening 2-300 outlets per month. Starbucks has over 3,300 outlets in China and has been there for 20 years, whereas Luckin Coffee started in June 2017! The main difference between the two is that you can sit down at a Starbucks whereas Luckin Coffee focuses on delivery and takeaway coffee, so not all of its stores have seating. This means that its outlets are smaller and can expand more rapidly in number. * SO WHAT? * The exponential growth of this start-up is phenomenal. However, it is currently sacrificing profitability for customer growth at the moment and offering hefty discounts to new customers, hence its thirst for investor cash. The party will get real once it pauses to sort out its profitability, however. Mind you, until then I suspect that there will be many who will want to jump on this growth train for at least a few more stops – and an IPO will give them a chance!

In merger and acquisition chat, UBS and Deutsche Bank asset managers in ‘serious’ merger talks (Financial Times, Arash Massoudi, Peter Smith, Olaf Storbeck and Stephen Morris) heralds what could be a major development as a merger of the asset management arms of UBS and Deutsche Bank could create a “European champion” in the investment industry. Talks have been going on for a few months, according to some close to the companies. * SO WHAT? * If created, it would overtake France’s Axa and the UK’s Legal & General and rival Amundi, which is currently Europe’s largest money manager with over €1.4tn in funds under management. It would also form a company that could compete more favourably with the likes of BlackRock and Vanguard. Clearly a deal between the two isn’t guaranteed and an announcement is not imminent, but that won’t stop tongues wagging!

Closer to home, Bid talk breathes life into Thomas Cook (The Times, Dominic Walsh) highlights rumours of a takeover of the travel group by Fosun International which powered the share price up by 18.3% yesterday. * SO WHAT? * There is talk of other suitors in the wings, but the fact that Thomas Cook didn’t make a formal statement about this yesterday would suggest that a deal is not yet finalised. This takeover frenzy started when the company put its airline business up for sale in February, but two recent profit warnings and a big debt pile have added to its woes, dragging its share price down by over 75% in the last year.

Google gets the go-ahead for drones, Revolut might lose its banking licence and Majestic mulls its options…

Google wins first FAA approval for regular drone delivery of consumer items (Wall Street Journal, Andy Pasztor) heralds an important moment for drones as Alphabet’s Wing Aviation unit got US Federal Aviation Administration approval to operate a fleet of unmanned aircraft to perform consumer goods deliveries – but only in a rural area in Virginia. * SO WHAT? * Loads of other companies, including Amazon, are trying to get similar approvals but I don’t think everyone should get too excited just yet about a sudden prevalence of drone deliveries. However, this is an important first step and sets a precedent that everyone will be watching closely.

Revolut may lose banking licence (Daily Telegraph, James Cook) is a dramatic-sounding headline as the high-profile British digital bank (founded by Nikolay Storonsky, who was born in Russia) only just got granted European banking licences through the Bank of Lithuania in December. Basically, the Lithuanian parliament will debate on the company’s alleged links to Russia and whether they could make Revolut “politically vulnerable”. * SO WHAT? * If Lithuania finds that there has been Russian influence, the company could lose its European banking licences which would make its geographic and further service expansion much more difficult. Storonsky has obviously denied allegations of Russian influence. The drama continues…

Majestic Wine could sell all UK stores in shift online (The Guardian, Jasper Jolly) looks at the current situation with Majestic Wine, which is currently looking at selling all of its 200 UK outlets and going online-only under the Naked Wines brand. Various options are on the table, but the situation is ongoing…

And finally, in other news…

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