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In this week’s Commercial Awareness update we discuss the Brexit deal, Apple’s share price worries, Snapchat’s investigation, Uber’s $1 billion loss and the university that received a £900k government bail out.
The Brexit Deal
The headlines have been dominated over the last week by the blueprint for the Brexit deal which has been released in a 585-page document. The agreement will extend the transition period to 31st December 2020, giving both sides more time to work out a permanent trade deal. However, Theresa May is struggling to convince members of her own cabinet that this is the right direction, let alone the House of Commons. Before we discuss this, here are the key parts to the proposal
Continue paying into the EU budget and enjoying similar conditions to the current situation until 31st December 2020
After that point, Britain would regain control of their borders - not bound by the EU’s free movement of people. Anyone from the EU who has settled here or does so up until 31st December 2020, will have the right to remain
A backstop (effectively an insurance policy) to ensure that there isn’t a hard border between Northern Ireland and Republic of Ireland
Environmentally, Britain will continue to be compliant with the policies set out by the EU, including limiting carbon footprint, etc.
During the interim period, the police will maintain the Schengen Information System and the European Arrest Warrant
There’s so much covered in the agreement, but there are a few key points above. When the deal was announced, the markets reacted positively to the news and the pound jumped against both the dollar and euro. However, after the Secretary of State for Exiting the European Union, Dominic Raab, resigned and Conservative MPs were writing letters of no confidence in Theresa May, the pound started to slump and was down 1.7% against the dollar at the end of the week. Currently, the rest of the cabinet appears to be backing her, but she may have more trouble with Parliament. It is reported that up to 80 Conservative MPs could rebel against the blueprint when brought to Parliament and the DUP (which prop up the Conservative government) are uneasy about Northern Ireland being more separated from the union if the backstop was played out. In these conditions, it looks unlikely to get a deal through parliament, but if the alternative is to leave the EU without a deal, MPs may fear the worst if they don’t back it.
Companies to watch
There are worries that the world’s largest company, Apple, has reached ‘peak iPhone’, with the tech giant’s share prices falling 5% last week. Apple’s shares are 20% below their peak from October when they became the world’s first $1 trillion company. This achievement is largely owed to the success of the iPhone, which generates two thirds of Apple’s revenue. Last week, there was a predicted 5% decline in iPhone’s being sold in 2019. In the midst of iPhone sales starting to peak, Apple deployed a new tactic – if it can’t sell more iPhones, it will sell the same number of iPhones but charge more for them. Apples latest models range from $1,000 to $1,500, however these prices may be proving too much for consumers, who are choosing to turn to older models or androids. This may be a link to tech jitters in investors as the American market, Nasdaq, fell last week by 2.8%. Despite the decline, Apple is still a $900 billion company.
Social media platform, Snapchat, is being investigated over claims that it misled investors over the threat of Instagram to their growth as a company. Investors allege that Snapchat should have attributed their slowing user growth in 2016 to Instagram, but instead downplayed the competition. In June, Instagram announced that their Stories feature had attracted 400 million daily users with reports suggesting that those within Snapchat knew of Instagram’s potential damage to their company. Whether Snapchat was aware of this is now a matter for the US courts. Since Snap’s $3.4 billion IPO back in 2016, the company has reported disappointing user growth and further experienced its first-ever drop in users from 191 million earlier this year to 186 million in the third quarter. However, despite these poor results, Snap still managed to break a revenue record.
The retail car service, Uber, is under pressure to improve their financial performance before their upcoming IPO as last week they announced a loss of $1.07 billion in the three months leading to September, with a previous $891 million loss in their second quarter. This news comes as Uber’s growth begins to slow, with bookings rising from 6% from this time last year, compared to a near 30% growth in 2016. However, Uber is increasing its expansion into other industries, particularly in their food delivery service Uber Eats. Gross bookings for Uber Eats topped $2 billion, a surge of 150% from the previous year. Uber’s biggest challenge will be to show investors that they are rapidly growing, whilst managing their substantial losses – both are key factors that investors look for in an IPO.
The university being bailed out
It was revealed last week that an unnamed “small, modern” university received a £900k emergency loan from a regulator, after running into financial trouble. The Office for Students (OfS), who regulates England’s higher education sector, stepped in to provide financial stability with a short term loan. In recent weeks, the chair of the OfS has said he wouldn’t provide financial support for struggling universities to prevent ‘too big to fail’ ideas.
As universities rely more on student tuition fees to fund them (rather than government subsidies), there has been a tendency for universities to borrow finances to improve their campus and facilities. This could be a risk as they are reliant on increasing admissions to ensure their finances work.
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