The week’s news included; US threatens to ban TikTok, Facebook launches legal challenge against EU competition investigation, Kodak steps into pharmaceuticals, Monzo facing existential threat
Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.
Opinion articles of the week:
- City A.M – A data arms race has begun — it’s not a game, it’s a national security imperative
- FT – Property law: Can we turn a shop into a home?
- Lawcareers.net – What are the key features of, and future predictions for, the UK corporate lending market?
- City A.M – UK retailers must adapt business models to survive pandemic, experts say
1. TIKTOK SECURITY SAGA DEEPENS
Donald Trump has vowed to ban TikTok from operating in the US. The US deems TikTok a risk to national security risk due to potential influence from the Chinese government. TikTok’s Chinese parent company ByteDance was seeking to change its structure & sell its majority stake in order to appease the US government. Microsoft was considering purchasing TikTok’s US arm but has halted plans due to Trump’s announcement. The US has accused TikTok of stealing data from its citizens. There are roughly 80 million active monthly users in the US, accounting for around one tenth of its total monthly active usership. In a message to its users, TikTok stood firm that it had no plans of halting operations in the US, despite Trump’s announcement.
The social media site has found itself at the centre of souring diplomatic relations between China and democratic world powers. TikTok has already been banned in India and its global presence could soon dwindle further. Its parent company Byte Dance has reportedly scrapped plans to launch its $100 billion global IPO.
Update 03/08/2020: President Donald Trump agreed to allow Microsoft Corp to negotiate the acquisition of TikTok if it could secure a deal in 45 days. (Link)
2. US ECONOMY TANKS
The US economy contracted by 32.9% between April and June, the steepest quarterly decline since records began. Despite somewhat limited lockdown measures in some regions, the US economy is built on consumer spending and this crashed by 10.7% in the second quarter. Economists initially foresaw that the US economy would bounce back quickly, and the second quarter would see the worst of the decline. Unfortunately, however, coronavirus case numbers are accelerating in the US and some regions have been forced to reimpose lockdown measures. This stop-start situation will be harmful for consumer confidence and in turn for the economy. Although the US added a record number of jobs as the economy reopened, a staggering 15 million jobs have been lost since the outbreak began.
The Federal Reserve in its monthly meeting said it was on standby to provide any support necessary as the situation developed. Chairman Jerome Powell warned of the “most severe” economic crisis of our lifetime.
3. BIG TECH BOOMS
Big tech firms, including Apple, Amazon and Facebook posted huge boosts in sales. Apple posted a huge $59.7 billion in the second quarter, up 11% last year and smashing estimates by $7 billion. Amazon posted $88.9 billion in revenue up by $25.5 billion from this time last year. Facebook and Alphabet both posted more modest increases but posted $18.7 billion and $38.3 billion in revenue respectively.
Alphabet, Amazon, Apple, and Facebook all faced a grilling from the US congress in a hearing. The CEOs were blasted over their uncompetitive practice and dominance in their fields. Congress labelled them “cyber barons” They all argued they had sufficient competition and even competed against each other. This hearing forms part of a wider subcommittee investigation into the dominance of big tech. Shares in the firms soared following the hearing illustrating market confidence in the maintenance of the status quo. With such economic might without drastic action, the power of big tech is unlikely to dwindle. The Guardian looks at the hearing in more detail.
4. FACEBOOK LAUNCHES LEGAL CHALLENGE AGAINST EU
Facebook has challenged the EU’s competition investigations into its practice on privacy grounds. The EU needed Facebook to submit internal documents including 2500 specific phrases such as “shut down” and “not good for us”. The EU is seeking evidence that Facebook is subverting competition. Many of these internal documents would include confidential personal information about employees and their families. This means that much of the data would not be only sensitive but also irrelevant and Facebook argues the EU’s request is too broad. The EU courts will now review Facebook’s claim, and this could require the EU to adjust its request. Check out our insight article on the EU’s investigations into big tech.
5. SAUDI DROPS OUT OF NEWCASTLE DEAL
A Saudi backed consortium has pulled its bid to acquire Newcastle United. The £300 million deal made significant progress in April and the relevant documents had been filed with the Premier League. The Premier League subsequently began its owner background checks on the consortium. Many raised concerns over the deal due to Saudi Arabia’s checkered human rights record but this alone was considered unlikely to derail the deal. Saudi Arabia’s Public Investment Fund, PCP Capital Partners and Reuben Brothers would have obtained an 80% stake but have now pulled out. The consortium cited the ‘prolonged process’ of completing the deal along with covid-19 uncertainty as the reason for the withdrawal. The deal would have seen Mike Ashley relinquish control of the football club after 13 years as owner.
6. AMAZON STEPS FURTHER INTO SUPERMARKET SECTOR
Amazon has increased its Amazon Fresh grocery service for Prime members. The service offers customers same or next-day grocery deliveries and currently customers must pay a monthly/delivery fee. Now, customers in London and the Home Counties will receive free delivery for orders over £40. There is also be an even faster same day-delivery service providing delivery before midnight for orders placed by 9pm. Amazon aims to expand the service to many other UK cities by the end of 2020.
Amazon Fresh adds significantly more pressure to UK supermarket players who are already battling for position. Their expanding offering puts most pressure on online only services such as Ocado. With an estimated 15 million Amazon Prime UK subscribers, its Amazon Fresh service could have a huge uptake.
7. KODAK STEPS INTO PHARMA
Camera maker Kodak has switched its focus to pharmaceuticals and will now become a large-scale drug maker. Kodak Pharmaceuticals will produce generic coronavirus fighting drugs and the US government has even given it a $765 million loan to get started. Kodak currently produces drug ingredients, but the new company will need around four years to scale up production.
Kodak’s popularity peak in the 1990’s but the firm fell out of favour as the digital age of photography crept in. After filing for bankruptcy protection in 2012, the firm has been seeking to forge a new path. In 2018, it announced it was stepping into the cryptocurrency space with Kodak Coin. KodakCoin was designed to facilitate payments for licensing photographs. This venture is having a shaky start however, as it saw numerous delays. The US pharmaceutical market is worth $340 billion annually so this latest venture may prove lucrative for Kodak. Kodak’s shares jumped 60% in response to the news.
8. GOOGLE DATA CABLE
Google is building a new undersea data cable connecting the US, UK, and Spain. The cable will be an upgrade of existing, improving the speed of Google’s data transmission. Data cables are typically built via collaboration between tech companies and are placed around 8000 metres beneath the sea. Privately built cables give tech firms more flexibility in choosing the most efficient route of transferring information between data centres. Google’s cable is expected to be completed by 2022 and will be the tech giant’s fourth privately owned data cable. 750,000 miles of undersea cables carry almost all of the world’s data. With global internet usage at an all-time high and demands for speed increasing, the improvement and expansion of data cables is vital.
9. MONZO ON THE BRINK
Monzo is facing deep trouble after posting a huge £113 million loss last year. This loss is more than double the losses suffered in the previous year. In Monzo’s latest report it warns of substantial customer loan defaults and has put aside £4.1 million due to this. Monzo lent £143.9m this year alone, an exponential mark up from last year. The digital bank also suffered a huge hit on its main revenue stream which is card transaction fees. With consumer spending and international travel at historic lows, this stream has dried up.
Monzo warned these heavy potential losses on lending and reduced revenue streams could inhibit the bank from carrying out its business plan. In turn, it may not be able to raise cash and meet its regulatory capital requirements, forcing it to discontinue its service. The bank has already slashed 120 of its 1500 workers. Monzo’s directors are, however, confident that capital can be raised from investors when necessary. The bank raised £58 million in its latest funding round in June. Monzo has gained significant popularity amongst millennials due to its user-friendly interface and its integrated money budgeting services.
10. BYRON BURGER SHUTS STORES
Byron Burger has announced that it will close 31 of its stores permanently as part of a takeover deal. Calverton UK will takeover 20 locations and existing shareholders will take a minority stake. Byron Burger has been struggling long before coronavirus and had fallen into administration in June. It had already undertaken a CVA in 2018 in an attempt to restructure the business, but this couldn’t resolve the core issues of the business. The firm has been seeking buyers for its stores and has now secured this but at a cost. Calverton UK will only take control of 20 sites, but the 31 permanent closures will see the loss of 650 jobs.