A nervy start for Snap

The tech sensation’s shares plunged after its first earnings report. Are investors right to worry? Ben Judge reports.

“The first earnings report after a closely watched tech IPO is always a nerve-wracking experience for investors,” says Matthew Ingram on Fortune. For investors in Snap, the parent company of mobile messaging service Snapchat, the results “went beyond just nervousness and crossed over into shock-and-awe territory”.

Last week, Snap announced it had lost $2.2bn in the first quarter on revenues of just $150m. Growth in the number of users was “significantly lower” than either the preceding quarter or the same quarter last year. Its shares slumped by almost 25% after the results were published, wiping $6bn off the value of the company. Co-founders Evan Spiegel and Bobby Murphy saw their personal fortunes dwindle by $1bn each.

Investors worry that Snap will turn out less like Facebook – “which has grown into a $400bn colossus” – and more like Twitter, which has seen its market value “plummet”, says Ingram. What’s more, Facebook has copied many of the features that made Snapchat so popular. “In the 30 pages of risk factors that Snap laid out for investors” ahead of its IPO, “it neglected to mention the biggest danger of all”, says Danny Fortson in The Times: “that Facebook would copy its best ideas, pass them off as its own and crush its upstart rival in the process”.

Nevertheless, Spiegel, Snap’s chief executive, “sounded remarkably upbeat as he addressed shareholders”, says Lex in the Financial Times. And while his flippancy may have irked some commentators, there is nothing wrong with his bravado. After all, “Snap’s results were far from disastrous”. Most of the deficit, says Fortson, was “down to a share bonanza related to the float that Snap handed out to its employees”. Remove those costs from the ledger and Snap lost only $188m.

The upshot, however, is that “Facebook could yet kill Snap”, says Lex, “but there is no need to panic yet. Snap is much earlier in international expansion and monetisation”.
It may be “over-priced”, but given its appeal now seems to extend “well beyond teenage devotees”, we can conclude that “there is nothing too depressing about the company’s health”. Big investors including Fidelity, BlackRock and Vanguard certainly appear sanguine. As the FT’s Jessica Dye notes, regulatory filings early this week showed they hold the shares. Investors took heart and decided they may have overreacted after the earnings conference, propelling the shares back up by 8%.

“Battered” Noble faces “long, hard slog”

“Challenging market conditions” led Singapore-listed commodity trader Noble Group to warn last week that it is heading for a first-quarter loss of $130m. Since then, Noble’s share price has fallen by 50% to a 15-year low, note Neil Hume and Jeevan Vasagar in the Financial Times. Credit-ratings agency Moody’s has downgraded the company’s bonds to “junk” and warned it may not have enough money to cover debts maturing in the next 12 months. Founder Richard Elman told investors it would be “a long hard slog” to profitability.

Noble has been “battered” by the downturn in the commodities market. Questions have also been raised about its accounting, though Noble has dismissed the criticism as “the work of a disgruntled former employee”. It has responded by selling off parts of the business and raising cash from shareholders, and has appointed Paul Brough as chairman, who will lead a review of the business. The ex-KPMG executive is a specialist in restructuring, and his CV is “a roll-call of Asia’s highest-profile corporate collapses”, says Jack Farchy on Bloomberg.

Brough will look at “strategic alternatives”, says Ranjeetha Pakiam, also on Bloomberg, which could indicate that Noble would be open to approaches from a buyer. Indeed, says Pakiam, with Noble now trading at 14% of its book value, “the chances of an opportunistic takeover… are high”.

City talk

• Preparations for the Chelsea Flower Show are proceeding much as they have for the past 100 years, says Patrick Hosking in The Times. But the number of corporate sponsors has shrunk dramatically, down to just eight compared with 17 last year. The Royal Horticultural Society blames “economic uncertainty”.

Others are blaming the City regulator, the Financial Conduct Authority, and its crackdown on bribery and improper hospitality. Gala Night drinks on the opening day was once the hottest ticket in town, says Hosking. But it costs £500 a head. “Lavish hospitality used to be the norm,” said one City professional. “Now it’s becoming a dirty word.”

• Fund manager Neil Woodford isn’t happy with GlaxoSmithKline, says Nils Pratley in The Guardian. His ideas for the drugs giant – shared by “other like-minded institutional investors”, apparently – have been “ignored”. His main complaint is that he would like to see the company – which he calls “a healthcare conglomerate with a sub-optimal strategy” – broken up. But in the 15 years he’s held the shares, none of the chief executives have listened to him. “It’s a point of view,” says Pratley. And it may be vindicated in time. But “the idea that GSK has somehow frustrated the will of the bulk of its shareholders doesn’t hold water”.

• Spare a thought for the Dulux dog, says Alistair Osborne in The Times. “Barely a day goes by without someone else slagging off its owner”, AkzoNobel. The top brass is doing all it can to resist
a takeover bid from American paintmaker PPG. But some shareholders aren’t happy. Intrinsic Value Investors wants AkzoNobel to make public the “in-depth analysis” behind its refusal to sell. “True, Intrinsic owns only 0.2% of the stock”. But now, “more than ten investors”, who together own almost 20%, have also “gone public with their anger at the board”.