There is a lot of fake news around on social media these days, but there is a specific reason why we cannot be 100% certain that the owner of Snapchat has filed for an initial public offering (IPO), or flotation.
Regulations in the US allow companies with revenues of less than $1bn (£800m) to keep the process private in its early stages. Snap, as the parent is called, falls into that category, thus the plan to go public has not been announced, merely hinted at.
Hold on, you might say, if Snapchat isn’t even bringing in $1bn-a-year in revenue how can it possibly be worth the rumoured $20bn-$25bn? Well, quite. This IPO takes us back to a world of hype in which heroic assumptions are made about a social media newcomer’s ability to attract advertising dollars.
Last time it was Twitter, which was going to be the next Facebook until it became clear it wasn’t. Twitter’s shares were priced at $26 at IPO in 2013, zoomed as high $70, but are now $19. The problem with Twitter as a vehicle for advertisers is exactly as predicted: unlike Facebook, the medium is fast and furious and users tend to resent commercial intrusions.
Snapchat, which allows users to send disappearing messages from their smartphones, seems even less equipped to turn itself into an effective advertising billboard. Yet Wall Street seems similarly smitten by the statistic that Snapchat’s has 150 million daily users. It makes no sense. This is a four-year-old company with modest revenues (an estimated $350m for 2016) that is still creating its business model. Maybe it will be worth $20bn-$25bn if it can overcome the challenges – but the valuation would be absurd today.
Morrisons cosies up to Amazon
It’s a strange sort of “exclusivity” deal that allows you to jump into bed with whoever takes your fancy. But Morrisons insists its tie-up with Amazon doesn’t infringe upon the contract it signed with Ocado. In the new “Morrisons at Amazon” operation, it is acting as a wholesaler supplying the US titan. By contrast, Morrisons is the customer in the arrangement whereby Ocado operates the morrisons.com website.
Confused? One assumes David Potts, Morrisons chief executive, had his lawyers check every possible wrinkle before signing with Amazon. If he is indeed on solid ground, one can understand why Ocado’s share price tumbled 8.5%. Life has become even trickier for the Hatfield-based technology whizzes.
Ocado still relies on one big supplier, Waitrose, for goods for its own online operation; but Waitrose operates a competing service and shows occasional signs of having itchy feet. Now Morrisons, the only firm to pay to use Ocado’s kit, is getting cuddly with Amazon.
On the plus side, “Morrisons at Amazon” seems aimed primarily at commuters who can’t be bothered to visit a shop on their way home and are willing to pay £6.99 to have their evening grub delivered within the hour. On the other hand, there is a free same-day offer for those prepared to wait a little longer and the range of Morrisons goods runs to “thousands” of lines. That, potentially, is more dangerous from Ocado’s point of view.
It is a trial, confined to “selected” postcodes in London and Hertfordshire, so could yet fizzle out. But it will probably make it harder for Ocado to sell its services to those overseas retailers it has been wooing for ages. None has signed so far and now Morrisons has invented a new online model for supermarkets – being a wholesaler to Amazon.
Mind you, Potts shouldn’t spend too much time congratulating himself on his own cleverness. The point about being a wholesaler is that you can’t dictate retail prices. If Amazon tries to undercut Morrisons on Morrisons-branded goods, he has a problem. There is also a moral for all supermarkets: the Amazonian beast is inventive and intends to hang around.
RBS faces up to US Department for Justice
If freelance diplomat Nigel Farage wants to make himself properly useful maybe he could have a word with his American chums about Royal Bank of Scotland. The US Department for Justice will hit RBS with a fine of $5bn-$12bn, or possibly more, says James Leigh-Pemberton, head of the body that oversees the state’s stake in the bailed-out bank. The estimate tallies with the City’s guess of the penalty for mis-selling mortgage securities in the pre-crisis years.
Unfortunately, nobody’s diplomacy will make any difference. The justice department operates to its own rules and RBS is towards the back of the queue of miscreant banks, probably the worst place to be. The US banks settled first, for reasons that have never been explained.
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