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WEEKLY MARKET ROUND-UP – 2/08/19

The Republic of Facebook

With some 2.4bn active monthly users and a new cryptocurrency in the works, Facebook risks becoming something no-one’s ever seen before, namely a virtual sovereign state.

Source: Quilter Investors.

LSE share price soars on $27bn Refinitiv bid

The London Stock Exchange Group (LSE) saw its shares rise more than 15% on Monday (29 July) after it confirmed it was in talks to buy financial data firm Refinitiv in a deal worth $27bn.

It said the combined business, with annual revenues of more than £6bn in 2018, would be the largest listed global financial markets infrastructure provider and would be well positioned for “future growth.”

The talks are said to be at an advanced stage and come less than a year after Blackstone bought a majority stake in Refinitiv from Thomson Reuters, leaving Refinitiv with $12.2bn of debt. They follow the failure of the LSE’s last proposed deal to merge with Deutsche Boerse in 2017, which was blocked by EU regulators on monopoly grounds.

'FAANGs' report on second quarter

With the exception of Netflix, the ‘FAANG’ stocks delivered impressive results in the second quarter.

Facebook’s results (24 July) came just hours after the Federal Trade Commission (FTC) announced a $5bn settlement for its morass of privacy abuses.

Revenue was up 28% with monthly/daily active users both up 8%. The Securities and Exchange Commission (SEC) meanwhile fined Facebook another $100m.

Amazon’s results (25 July) were more mixed; sales beat forecasts but earnings missed, and the shares subsequently eased on weaker third-quarter profit guidance. Revenue jumped a whopping 20% (to $63.4bn) but, thanks to a c$800m investment to make one-day shipping the default for US Prime members, profits fell putting an end to four straight record quarters.

Meanwhile, Amazon Web Services (AWS) reported 37% growth after 41% in the previous quarter.

Apple revenues hit a record $53.8bn although profits fell to $10bn from $11.5bn a year ago. Its services division hit a record, ‘wearables’ gained ground and iPhone trends improved according to CEO Tim Cook, who also promised a slew of new product and service launches.

Netflix shares fell 10% on its results (17 July) following a rare loss in US subscribers and a big miss for new international subscribers. Earnings per share beat expectations while revenue (of $4.9bn) was up 26% on a year ago.

It blamed its content slate for the weaker quarter but was confident of a stronger third quarter on the back of new seasons of Stranger Things, Orange is the New Black and The Crown.

Google (Alphabet) reported higher than expected revenue ($38.9bn) that was up
19% with profits sailing past $9bn. Google’s reporting remains convoluted, but its leaders revealed that YouTube and Google Cloud were among the top contributors to revenue growth.

Takeaway.com and Just Eat agree potential £8.2bn deal

London-listed Just Eat saw its share price initially soar around 25% on Monday (29 July) after it agreed a deal in principle with Takeaway.com of the Netherlands for an all-share merger that would create one of the world’s largest online food delivery businesses.

The combined business would be valued at around £8.2bn with Just Eat shareholders owning 52.2% and Takeaway.com shareholders owning the remainder. The two businesses had 360m orders worth €7.3bn in 2018 and strong positions in the UK, Germany, the Netherlands and Canada.

Should the deal go ahead it would eclipse Uber Eats, based on order value, and secure a key position in a market recently targeted by online giant Amazon. Takeaway.com has until 24 August to make a formal offer for Just Eat.

Credit: Just Eat

Sterling slumps on no-deal fears

Boris Johnson’s determination that the UK will leave the EU on 31 October “no matter what” has seen sterling drop around 2.5% since he became prime minister last week, reaching lows last seen in the wake of the EU referendum in 2016.

Quilter Investors’ Hinesh Patel says: “Financial markets have woken up to the scare of a hard Brexit this Halloween. But the ‘Brexit risk premium’ in sterling is mostly baked-in – today, the currency’s destiny hinges on central bank actions.

“If the BoE ‘out-doves’ the ECB, Fed and BoJ then sterling tests $1.20 – and presumably this would happen because the economy is about to fall off a cliff. In that situation you can throw out your calculator for FX conversions because it’ll be €1/$1 to the not so great British pound.”

Chart of the week

Losing streak: Supply chains are suffering; upheaval in the autos, airlines and semi-conductor sectors has led to the longest decline in global manufacturing PMI data ever recorded.

If any article in this market update has an effect on your finances and you would like professional advice, then please get in touch.

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