FPS’ Friday Fiver

This week’s Fiver questions bubbles and bookings as well as a look at Generation “R”, the latest political poll and a glance at governance. The Fiver borders on weighty tome status this week but stick with it as it has been lovingly prepared. Thanks to Jo, Ross, Clare and Dave for their contributions.

Digital business, bubbles and customs

Digital business is big business. It has become a feature of the economy as the front page of today’s Financial Times’ Companies & Markets section illustrates. The three leading stories relate to Groupon, the discount voucher website’s IPO, Asos, the online fashion retailer’s share price and Betfred, the online gambling company’s bid for the Tote.

The dotcom bubble of the late 1990s may feel like a distant memory for many investors but large sums of money has made its way into online ventures in recent months. LinkedIn was valued at $3.3bn but since listing on the NYSE the company’s market value has jumped to $9bn, Groupon is looking to raise $750m and Microsoft purchased Skype at a value ten times its sales.

[Nasdaq exchange pre and post the dotcom bubble]

There are many challenges for those considering investment. The most commonly discussed is the process of finding a fair value for these companies and whether the relatively meagre earnings justify the price tags.

A second, and perhaps less discussed aspect of valuation is the scalability of these businesses.  Internet businesses are intuitively transferrable between countries and consumers, but an insightful piece from Philip Delves Broughton this week pointed out that “just bec­ause the world is connected does not mean it is all the same.” The article highlighted many examples, such as Google in Russia and Facebook in Japan where the business has not caught on. MoneyWeek does not believe we are on the cusp of another tech crash but it will be interesting to see whether current activity is sustainable.

Cardly friendly

Low cost operator Monarch made quite a statement in the world of controversial surcharges by being the first airline to abandon these on bookings made by debit cards. The airline’s message to the consumer is to provide upfront, transparent and easy to understand charging for customers. This has been offset however, by raising the charges for payments made by credit card to a minimum of £10 – better news for family travellers perhaps, but certainly not if you’re going solo.

 

There has been growing pressure from consumer rights group such as Which? surrounding charges it views as unreasonable and they have called on the Office of Fair Trading to investigate.

Low cost airlines are some of the worst offenders when it comes to excessive card surcharges and Monarch’s recent announcement will certainly put the pressure on others to follow suit, but in a bid to squeeze more of our hard earned cash I’m sure the love to hate airline Ryanair will find yet another way of doing so.  Most recently the airline (Ryanair) told The Independent they have been looking at introducing a 10 euro ‘reserve a seat’ service on certain flights, to add to the £6 on debit card booking fee. This should come as no surprise considering the £1 suggestion to use the bathroom on board!

Under the radar

Wednesday’s ComRes poll, showing that under Ed Miliband Labour has lost its lead over the Tories, has been scantily covered. Perhaps parliamentary recess and political focus on the proposed NHS reforms has meant ComRes’ poll has largely gone unnoticed. But should it have?

 

Labour party members must be growing concerned that Ed Miliband is failing to build traction with the electorate and that he isn’t ushering in a new dawn for Labour as promised. With the Lib Dem’s wanting to heighten their own identity following a disastrous No to AV campaign, they have been trying to highlight their own differences to the Tories and have thus stolen much of Labour’s natural thunder as the Opposition.

 Undoubtedly, Ed Miliband and the wider Labour party have failed thus far to convincingly communicate alternative policies to the Coalition Government. Until Miliband and his team beef up their policy and communicate this effectively, Labour’s support is at risk of further decline.

Generation R
I do pity ‘R’ generation (get it?). We were not able to access student grants and so shouldered university tuition fees and student loans, before entering the world of work (if we could get a job in an increasingly challenging marketplace) with substantial debts. Now the self-pitying deepens as according to a survey by the NCSR, two-thirds of 20-45 year olds who do not own their own home believe they have “no prospect whatsoever of buying a home”.

The survey, commissioned by Nationwide, found that 95% of those surveyed said they have no spare cash, no interest in saving for a deposit or were trying to save but failing to do so. I hate to be a naysayer, but Generation Renter, if you do not do/will not save, then of course you will not be able to afford to buy your own house! Yes, it will probably take you longer to own your own home (a survey by Moneysupermarket found that the average age of a first time buyer will soon be 38 years old) but if that means you are in a position where you can comfortably afford your mortgage repayments and can realistically dream of paying it off, then surely the wait will be worth it? Apparently, good things come to those who wait…

Shareholder governance

At a conference held by the Investor Relations Society, one third of attendees voted that companies should put shareholder interests at the centre of their decisions but tellingly, two thirds believed that it was important to balance the needs of shareholders with those of company employees and other stakeholders such as the communities in which the business operates.

Governance is a broad subject but its importance was emphasised by Anthony Hilton in PR Week where he said that following;

“People’s initial instincts are still more inclined to trust rather than distrust. But as long as the culture of business is rooted in progressing the interests of one set of stakeholders, it is unlikely to be trusted by anyone else.”

 These developments may not have gone unnoticed by Friday Fiver regular Glencore. It has been a bumpy ride for initial investors in the commodities giant and in part this has been due to questions of corporate governance.

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