Even Trump’s Twitter binges aren’t enough to make it worth $11bn
As Jack Dorsey, the Twitter chief executive, said he was “proud to report” a 14% increase in daily usage of the social media service, the shares moved higher. It’s hard to understand why. Quarterly revenues fell by 8% to $548m (£427m), the first time they have dropped since Twitter became a public company in 2013. Meanwhile, profits are nowhere to be seen. In the first quarter, the company lost $62m, an $18m improvement on a year ago, thanks to cost cutting, but hardly justification for a stock market value of $11bn – less than it was, yet still substantial.
“While we continue to face revenue headwinds, we believe that executing on our plan and growing our audience should result in positive revenue growth over the long term,” Dorsey said. The plan is probably the only one worth backing: get the audience up and hope revenues follow. But the current breakdown in the relationship between audience and revenues suggests Twitter’s clout with advertisers is fading fast.
Maybe it is being outgunned by Facebook and Google, with their vastly greater audiences and budgets. Or perhaps Twitter, despite Dorsey’s many modifications, is simply less suited to commercial messages. If so, even Donald Trump’s tweeting flurries, which boost audience statistics, won’t bring salvation – or a reason to value an 11-year-old company making a loss so highly.
GSK’s new chief takes on the ‘perennial question’
Emma Walmsley’s first big call as chief executive of GlaxoSmithKline was easy to make and correct: she ruled out a breakup and committed herself to a corporate structure that houses complex pharmaceuticals, vaccines and consumer products such as toothpaste and Horlicks under one roof.
In truth, nobody expected any other decision. Walmsley was an internal appointment, blessed by her predecessor Sir Andrew Witty. He spent ages deflecting calls for GSK to do the splits and she used to run the consumer division. Still, there’s no harm in Walmsley addressing the “perennial question”, as she called it, in her first month in charge.
Like Witty, she argued that reliable cash flows from vaccines and consumer products are a natural balance to the higher risk and more volatile business of developing pharmaceutical drugs. And she agreed that there are benefits from being able to switch prescription medicines to the consumer category when patents expire. Neither argument is 100% convincing in itself, but both are more persuasive that a disruptive separation in which the only guaranteed winners would be investment bankers and lawyers.
There were no major fireworks then, which may explain why the shares were the biggest faller in the FTSE 100, down 2%, despite first quarter figures that showed revenue and profits marginally ahead of City forecasts. But Walmsley was clearly signalling a shakeup of some sort in pharmaceuticals with her pointed criticism that GSK has sometimes pursued interesting drugs that lack sufficient commercial potential. Some programmes may be dropped or shoved into partnerships.
Until full details are published in July, it’s hard to tell whether the plan represents a tweak or serious reform. But the market’s yawn seems odd. A new CEO who talks about “disciplined choices” to make the labs more commercial usually gets applause from investors.
The Lloyds investigation is welcome but a mess
It is understandable that Lloyds Banking Group feels the need to answer definitively the charge that its board and executives were complacent about fraud at the HBOS Reading branch.
The bank has appointed Dame Linda Dobbs, a retired high court judge, to examine whether Lloyds handled the matter properly and met its reporting obligations after buying HBOS in 2009. The fraud, for which six people were jailed in February, ran from 2003 to 2007, but victims have long argued that Lloyds wouldn’t listen to their complaints after the takeover. This allegation is serious and an investigation is overdue.
Everybody happy then? Not really. The natural investigator is the Financial Conduct Authority, which is supposedly on the job. The regulator’s inquiry into HBOS Reading, which was suspended in 2013 when Thames Valley police leapt into action, reopened last month. The primary focus may be on what HBOS did under its own steam, but Lloyds’ actions after it bought the ailing lender will also be under the microscope.
Indeed, Lloyds will not be allowed to publish the Dobbs report or any of its findings until the FCA says so. Put another way, Lloyds has launched an “independent” inquiry into itself that won’t be regarded as independent or credible until the regulator allows. It’s good that this affair is getting the attention it deserves, but the process is a mess.