In this week’s Commercial Awareness update, we discuss a volatile week for the markets, the Daily Mirror’s takeover of the Daily Star and Daily Express, Amazon’s decision to launch a postal service, the social media channels making a profit and the nation’s favourite supermarket.
It was a volatile week for financial markets across the world, with the American “sell-off” causing nervousness amongst investors. Last week the Dow Jones Industrial Average fell by more than 1,000 points (over 4% down) on two separate days, as investors worried about the future outlook. This caused a knock on effect in Europe, with the FTSE 100 dropping 1.49% to 1,170.69 points on Thursday, and the German and France markets falling by 2.6% and 2% respectively. Last month, the American markets and the FTSE 100 were at record highs, but there has been a 10% drop for the Dow and S&P 500 since then. Despite this, the worst losses last week were in the Asian markets, with the Japanese Nikkei finishing down 8.1%.
The volatility is unlikely to end in the coming week, with inflation figures in America set to be released on Wednesday. Experts believe inflation across the globe is set to rise after strong US employment figures were released and yields on bonds rose - both potentially signal increasing inflation. If the cost of living rises, people are likely to have less spending power, which could have a knock on effect to businesses across the globe, regardless of their sector. Also, higher interest rates are likely to lead to interest rate hikes (something the Bank of England spoke about in the week), which push up borrowing costs for businesses and customers, therefore reducing profits.
Questions to ask yourself… Why are high bond yields an indication of rising inflation? Should the Bank of England raise interest rates?
Companies to watch
Research by consumer experts ‘Which?’ has placed Aldi as the most popular supermarket in the UK. A satisfaction survey of 6,800 shoppers over the last six months found the budget supermarket was the nation’s favourite place to shop - replacing last year’s winners Waitrose. Value for money was the key driving force behind its climb up the rankings, with Waitrose dropping down to fourth place, largely due to consumers believing they don’t get this same value for money. For their online offering, Iceland and Ocado shared top spot, with the former scoring highly for its drivers’ service and availability of delivery slots.
These results could indicate a change in customer priorities while the economy goes through an uncertain time. It seems value for money is much more important for customers than service or convenience compared to the same time last year. With both Aldi and Lidl in the top three on the survey, discounter stores look set to continue increasing market share.
Trinity Mirror (the company that owns the Daily Mirror) has agreed a £126.7 million deal for the publishing assets of Northern & Shell, including Daily Express, the Daily Star and OK!. The owner of Northern & Shell, Richard Desmond, has been in the industry for 18 years, but has decided to sell amid declining sales of their newspapers. At their peak, the Daily Mirror and Daily Express sold eight million copies a day, but today they rarely break one million copies between them. Trinity Mirror expects to make saving of £20 million a year by combining operations, enabling them to increase profitability. They also point towards the online readership of both publications as a key reason to acquire Northern & Shell. Trinity Mirror has confirmed that both papers will not be changing their identities or viewpoints under the new ownership.
Shares in delivery companies in both America and the UK took a hit last week, as reports surfaced that Amazon plan to launch its own delivery service for businesses. Shipping with Amazon is set to start its operation in Los Angeles in the coming weeks, and, if successful, will expand across the globe - almost certainly coming to Britain. After the announcement, shares in UPS and FedEx were down 6% and 5% respectively, whilst Royal Mail dove 1% in a day. Amazon founder Jeff Bezos has been critical of Royal Mail’s ability to handle large quantities of orders in the past, so the British market would be an obvious target for expansion.
Bezos - the wealthiest person on the planet - has been moving into new markets in recent years, pursuing an aggressive growth strategy. Last year, Amazon acquired supermarket Whole Foods and started testing drone delivered packages.
Questions to ask yourself… Is the rise of Aldi and Lidl just down to value for money? Which other markets could Amazon move into?
Social Media making gains
There was some much needed good news for both Snapchat and Twitter last week with both announcing a strong performance.
In the fourth quarter of 2017, Twitter recorded its first profit in the company’s 12 year history and five years after its IPO. They announced a $91 million profit in the quarter, compared to the $167 million they lost in the same period in 2016. Revenues grew to $732 million after income from video ads showed strong increases. Twitter also announced they forecast an annual profit for 2018. However, it wasn’t all good news for the social media giant, with user numbers in their biggest market (America) dropping by 1 million to 68 million. Nonetheless, the share price jumped over 20% on the back of the announcement.
It was also a good week for Snap Inc., its share price rose 25% after it reported better-than-expected results in the final quarter of 2017. In the quarter, Snapchat added almost nine million more users and reported a revenue of $285.7 million - significantly more than the expert prediction of $253 million. On the back of this announcement, Snap Inc.’s share price rose above its $17 initial public offering price in March 2017. They still face significant competition from Facebook and Twitter, but there is newfound optimism in Snapchat - a stark contrast to the feelings after their previous quarterly results announcement.
Questions to ask yourself… How can Twitter and Snapchat keep developing their offering to boost revenues? Can either compete with Facebook?