January 25, 2007 | posted by Michael Baxter in IABN | comments (0) |

Analysts were celebrating yesterday as Yahoo posted a 61 percent fall in profits. It seems strange, but, as profits fell, shares leapt by almost 6 percent.

Yahoo’s problem is this: Just like eBay, it has to contend with Google breathing down its neck. And, while Google seems to be able to do no wrong, Yahoo has apparently been moving backwards.

But yesterday, analysts looked beyond the last quarter, and celebrated the forthcoming release of Panama - Yahoo’s advertising system for Internet search.

Panama is ahead of schedule. The company is now talking about a 5 February release date, one month earlier than originally predicted.

But, if Panama means medicine for Yahoo’s ills it had better work. In the quarter just gone, net income was just $269 million, or 19 cents a share, versus $683 million a year ago.

Then again, while the media has been talking about the poor quarter at Yahoo and how hopes rest with Panama, we have been searching our archive.

This time last year, the headline net income figure at Yahoo was $247 million, and the massive $683 million was down to a not-to-be-repeated-gain after the dot com star took a 40% stake in Chinese firm Alibaba.com.

So actually, underlying profits at Yahoo are up.

We could find no mention of this in media comment today - history it seems is not the media’s strong point

January 25, 2007 | posted by Michael Baxter in IABN | comments (0) |

We are running out of fingers. Here we are, still suffering the January shivers, and the Dow Jones has managed its umpteenth new high of the year.

So far, it feels as if 2007 has been one long set of new highs. In fact, the Dow Jones Industrial 500 broke the record on the first trading day of the year, and then repeated that feat on the second day.

By the close of the day yesterday, the Dow had passed yet another new high, the fifth of the year - and is now 158 points above the start of year position, and 899 points up on the January 14 2000 level of 11722, which was the all time high until last year.

On this occasion it wasn’t falling oil that did it either. In fact oil was up again yesterday, now $5 up on the level it fell to last week.

This time it seemed George W had a lot to do with it. His State of the Union Address seemed to raise hopes, leading to a patriotic buying spree. Company results helped too.

It is a little odd. The prognosis for the US economy is about as bad as it has been for some time. Expectations for the US housing market are poor, and yet stocks just keep on rising.

January 25, 2007 | posted by Michael Baxter in IABN | comments (0) |

Minutes later it all seemed to change. And, all of a sudden, some commentaters are saying that interest rates won’t be going up soon after all.

By minutes, we are not, in this case, referring to a unit of time, rather the publication of the minutes of the last meeting of the Bank of England Monetary Policy Committee, which so unexpectedly upped the rate of interest earlier this month.

The shock news: four out of nine members voted against the rise.

That two of the members- Rachel Lomax and external member David Blanchflower - voted against was no surprise. They are well known for their dovish views, and have been cooing against the hawks at every meeting for some time. Even voting to lower rates on occasion.

But this time, they were joined in their cote by two other members. Does this mean that the camp in favour of raising the rate of interest is diminishing, suggesting a swift end to the phase, or is this simply a case of hawks and doves taking temporary cover before they return to their natural state?

It would appear that, on this occasion, some of the members who voted against the rise were not so much against the idea of upping rates, rather they felt the timing was wrong. Their no vote had more to do with tactical timing then a sudden ‘road to Damascus’ moment.

January 25, 2007 | posted by Michael Baxter in IABN | comments (0) |

Over the last year or so, eBay struggled to do little more than bore the markets. Its days as a racy growth stock seemed to be over, with each three month period showing growth, if indeed there was growth, barely above anaemic. Analysts started to look over the Internet auction company’s shoulder at the mighty Google waiting in the wings, with a product line-up that threatened to make eBay look like yesterday’s star.

But then, yesterday, it all seemed to change, with the company announcing a 24 percent jump in profits, while revenue saw a bigger increase - up 29 percent.

The problem eBay had was this: it was no longer flavour of the month and analysts had been looking at its recent slow growth, and comparing that with their darling Google. The hype said the search engine company could do no wrong, and, as is so often the case, markets bought the hype.

What really spooked eBay analysts were a series announcements from Google for rival services. First there was Google Checkout, a rival to the eBay online payments system PayPal, then there was the rival e-commerce product - Google Base. Even VoIP, a market eBay should have dominated after it bought Skype, was facing competiton from Google.

And yet, while eBay stuttered, there were good reasons to think it was just a temporary phase. And while we don’t want to bombard you with the deafening fanfare as we blow our own trumpet, we did say so many times last year.

In the US, it would appear that the company has been approaching a level of saturation in the online auctioning market for some time. But eBay had lots of ideas for diversifying, and it was inevitable this would take time.

This time around, however, the company was able to announce major growth in all three of its key areas. In fact, Meg Whitman, Chief Executive, reckons the hype generated by Google for its checkout product, actually benefited PayPal. The online payments system saw a 47 percent growth in revenues, with a staggering $11 billion worth of transactions going though the system - 57 percent up on last year.

As for Skype, revenues increased by 164 percent to £66 million.

Actually, just to backtrack for a moment and place the cynic’s hat on our analyst’s pate, there is another way to look at the Skype results. The company paid $2.6 billion for the VoIP company back in 2005. At the time, Skype’s revenues were tiny, and so the growth requirement was very significant. So, for the company to justify the vast sum it paid out, it needs to see that growth rate continue for some time ahead.

Perhaps eBay’s real potential for future growth lies abroad. And in the quarter just gone, both the UK and Germany made significant contributions to the bottom line. In fact, the UK is now the world’s most active eBay nation per capita. In the UK, around £50 per UK citizen is traded on eBay, and that is a record.

Above all, it seems there are many potential applications for eBay that have not been fully exploited. Who knows, maybe under the EU’s Markets in Financial Instruments Directive, one day you could even be trading shares over the service?

January 24, 2007 | posted by Michael Baxter in IABN | comments (0) |

The war of words between LSE and NASDAQ continued a pace yesterday, with LSE’s chairman Chris Gibson-Smith saying the US stock exchange’s latest statement is “long on rhetoric and short on valuation arguments.”

The latest round of verbal fencing came when NASDAQ published a document saying the LSE “completely failed to engage with Nasdaq with respect to a recommended transaction”. It also criticised LSE growth projections.

But in return Mr Gibson-Smith said: “The board believes it is increasingly clear that Nasdaq’s interests are not aligned with those of other shareholders, and Nasdaq’s self-serving criticism of the exchange’s growth prospects underlies its obvious need to acquire it - albeit on the cheap. The document published by Nasdaq today is once again long on rhetoric and short on valuation arguments.”
Many analysts think it’s strange that the NASDAQ is questioning LSE growth potential - why do they want to buy them, goes the argument.
LSE CEO, Clara Furse is highly respected, and somewhat popular with the press. She seems to have successfully managed to persuade the UK media to back her.
We do wonder, however, whether a NASDAQ purchase of LSE, if it means the import of US ideas on entrepreneurism to the UK, could be good news for the UK.
Alas, there is a failure by many in the City and in the press to understand how important the visionary entrepreneur is. And until this changes, the UK will always lag behind the US in productivity.

January 24, 2007 | posted by Michael Baxter in IABN | comments (0) |

The oil market saw a new consumer enter the fray yesterday, and as a result black gold did something of a surge, moving back up to $54.8, four dollars up on the end of last week.

Who is this new consumer that has caused oil to rise so high? We know all about China and India buying more of the black stuff; does it mean new pricing pressure for the future?

Uncle Sam is the new entrant. At least, US Energy Secretary Samuel Bodman said yesterday that George W. Bush wants to double the size of the country’s emergency oil reserves by 2027.
At present the emergency reserve has 737 million barrels, but from the Spring the plan is to buy 100,000 barrels a day.
Although the theory behind the US idea is good - meaning that the country is less vulnerable to future shocks, history tells us that whenever the US has increased its emergency stock pile, the price of oil has gone up.
Meanwhile, Mr Bush made his annual state of the oil industry address yesterday. Actually, it is called State of the Union, but a year ago he famously said the US was addicted to oil. Now he is calling for a 20 percent reduction in gasoline consumption within ten years, and much greater use of bio fuel.
It’s funny how interests can converge. Mr Bush is worried about US reliance on oil supply from less stable areas of the word- it all fits in with his war against terror.
Yet, by following this policy, he is also going some way to make the green lobby happier. Only some way that is, as many believe that bio fuel is no more friendly to the environment than oil, although its use is of course much more friendly to US farmers.

January 24, 2007 | posted by Michael Baxter in IABN | comments (0) |

The great and the good of the global business world are meeting in Davos Switzerland at the annual World Economic Forum. And as ever with these events, surveys seem to be making the biggest headlines, and over the last few days there has been a glut of survey results. (Maybe it’s time to survey confidence amongst commentators that next year will see even more surveys).

So far there have been two surveys out questioning business leaders, but the meeting organisers also published the result of a survey amongst ordinary people, (not that CEOs aren’t actually that ordinary), and the results show a fascinating divergence of opinion.

The survey that made most of the headlines today was carried out by PricewaterhouseCooopers. It found that of 1,100 CEOs, a staggering 93% are confident of achieving revenue growth over the next three years. This represents a doubling in the number of confident CEOs over the last five years.

Meanwhile, another survey carried out by Gallup on behalf of the meeting organisers, amongst delegates at Davros, found that 65 percent believe that the next generation of global citizens will live in a more prosperous world- albeit, a less safe one.

But your men and women on the street, including those who travel the world on the equivalents of the Clapham Omnibus, are not so sure. Just 40 percent think the next generation will live in a more prosperous world - and a surprisingly high 31 percent of ‘people’ think the next generation will be worse off.

Then there’s the comparison between what the world’s business leaders think of themselves, and what the rest of us think

42 percent of business delegates visiting Geneva’s gathering of leaders reckon they respond well to pressure, strangely only 31 percent of ‘people’ share that view of our business leaders. ‘People’ on the other hand reckon that business leaders are unethical, have too much power and are dishonest (30, 34 and 34 percent respectively), while business leaders who share these qualms number just 25, 24 and 14 percent.

And what do you think of your boss? Or, are you the boss? Apparently, 18 percent of ‘people’ think business leaders are incompetent, and yet just 6 percent of delegates share that view.

It was a similar story with trust. 50 percent of business and political leaders think the best way to recover trust is to be more transparent, and 23 percent reckon that re-connecting with stakeholders is the key. A mere 7 percent of leaders think that punishment of fraudulent behaviour is the answer, and yet 30 percent of ‘people’ think it is.

Moving away from the US and them divide, both the PWC and Gallup polls looked at attitudes to the environment.

The Gallup poll found that protecting the environment was the second most important priority for delegates, with 20 percent of those questioned saying it was a main priority. Only economic growth did better, achieving 26 percent. Reducing war (9 percent) and the war on terrorism (6 percent) were well down the list.

The PWC survey, on the other hand discovered a stark contrast between attitudes to the environment between CEOs in the US, and the rest. 40 percent of CEOs responding to the PWC survey expressed concern about the threat posed by climate change; this figure rises to 58 percent for Asia Pacific CEOs but significantly drops to only 18 percent of North American CEOs.

Finally, there are causes for concern. PWC found that 73 percent worried about over-regulation, up from 64 percent last year. And if you possess key skills, then maybe a move to Asia Pacific might be in order. The survey found that in Asia Pacific concerns are particularly acute about a looming scarcity of key skills, with 88 percent of CEOs in the region citing this as a concern, compared to 72 percent overall.

As for our take, 50 percent of us believe our business leaders are great and all round nice people (can I have that pay rise now? - ed), and half of us think they are mean.

January 24, 2007 | posted by Michael Baxter in IABN | comments (0) |

Nigel Lawson would have seen it as a major victory against inflation. The pound surged again on global currency markets yesterday, moving within just a cent of $2 to the pound at one point, and passing a 14 year high, while it hit 241.42 yens, the highest level since 1992.

You may recall Mr Lawson, the chancellor under Margaret Thatcher, and now almost as famous for being the father of a well known chef, had this big idea for fighting inflation. He thought that by maintaining a strong pound, and in particular shadowing the deutsche mark, the fight against inflation would be won.

For a while, Mr Lawson, was considered by many to be Britain’s best ever chancellor, until the Lawson boom and bust spoilt his legacy. Along with Geoffrey Howe, he urged Mrs T to let the UK join the European Exchange Rate Mechanism (ERM), as a way of formalising the relationship between sterling and the German currency.

In order to keep the pound strong, Mr Lawson kept the rate of interest high - but much higher than it is today.

Now forward wind the clock to 2007, and we see a similar circumstance, but underlined by different economic policy.

Today, it’s all about fighting inflation by keeping a lid on demand through playing with interest. But there’s a side effect, a high rate of interest here, coupled with talk it will rise again, while it is thought rates in the US may have peaked - has led to investors pouring their money into Blightey.

The latest thinking in Japan is that it’s possible rates may have peaked already - at just 0.25 percent; and this huge differential between the cost of borrowing in Japan, and the return on saving in the UK, is giving birth to a new wave of the carry trade, when people borrow from the banks of the rising sun, at rock bottom rates, and put their money over here, boosting the city’s coffers.

Will it continue? Will sterling pass $2? Frankly, it’s already so close that it would take a brave commentator to say otherwise.

But by the end of the year, it could go into reverse. At least that’s what Capital Economics thinks. It reckons the impact of high sterling on our balance of payments will be such that our growth in GDP for this year will fall short of the optimistic predictions that have been doing the rounds. As a result, says the economic think tank, rates will fall, bringing sterling down in their wake.

Also, bear in mind that as our balance of trade has such a massive deficit, there are good reasons for the pound to fall. It’s the booming city and high interest rates that are keeping it high, the fundamentals say sterling should fall.

Editors foot note: The UK joined the ERM at 2.95 deutsche marks to the pound. When the euro was formed, the German currency was converted at the rate of 1.95583 deutsche marks to the euro. Today there are 1.5214 euros to the pound, and that works out as the equivalent of 2.9756 pounds to the old deutsche mark. 15 years on, from when George Soros made his fortune from dumping sterling, and we are back to where we started.

January 23, 2007 | posted by Michael Baxter in IABN | comments (0) |

The preliminary findings are out. And if bosses at Tesco and co were up all night worrying about it’s findings, maybe they’ll sleep a little better tonight.

The preliminary report said there is “no clear evidence that supermarket buyer power is reducing supplier innovation.” As for land planning, the report said there is: “Conflicting evidence on effect of planning controls; some say they are too restrictive, others that they are not restrictive enough.”

Peter Freeman, Chairman of both the Competition Commission and the Inquiry Group, said: “Our principal concern now is to focus on competition between retailers at the local level, where it most matters to consumers, as this is where many of the potential concerns we have would be evident.
“It would be a cause for concern if supermarkets, either individually or collectively, were in a position to increase prices or lower their offer in any particular locality or region because of lack of effective competition.
“We are not here to punish success or individual retailers but we are concerned with whether Tesco, or any other supermarket, can get into such a strong position, either nationally or locally, that no other retailer can compete effectively.
“We have considered the evidence supplied concerning relationships between grocery retailers and their suppliers. Whilst these haven’t indicated widespread problems in the supply chain, there are still concerns. We have found that bigger buyers do not always appear to get better terms from suppliers, and food and drink manufacturers and processors, as well as wholesalers, seem to be in reasonable shape.
“However, we have some concerns about farmers and we have not received as much specific evidence about unfair treatment of suppliers as we might have expected. There may well be many more examples out there but we need to hear them otherwise we would have difficulty coming to a conclusion. So we would appeal once more for suppliers with examples to come forward and assure them that requests for confidentiality will be taken on board.”

January 23, 2007 | posted by Michael Baxter in IABN | comments (0) |

Next month is an important period for NTL. That’s when its new name - Virgin media - will be pushed down the public’s throat, and it’s when the marketing of the fourplay concept (that’s TV, broadband, and fixed and mobile telephony,) kicks off.

When this plan was first announced many critics questioned whether there was a need for the fourplay option at all. They argued that the choice of TV, broadband and fixed line telecomms company was a family choice, whereas different members of the same family often subscribe to different network providers.

But maybe they did not fully factor in the potential for TV on mobile phones.

There’s also the issue of family economics. Parents do still have influence over the purchasing habits of their children. The idea that the whole family has the same mobile network provider is surely not quite so outrageous - providing, that is, it makes sense economically.

Soon we will know more about whether the new Virgin Media package is going to take off. Next month will see the launch of the advertising campaign, and Uma Thurman, star of the films Pulp Fiction and Kill Bill, has been signed up to front the £20 million TV campaign.

Marketing can change minds. And analysts are not good at taking this into account.