Breakingviews - Corona Capital: NYSE e-trading, Blue Apron bubbles

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Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., August 12, 2019. REUTERS/Eduardo Munoz


- NYSE e-trading

- Blue Apron bubbles

- Free stuff

- Telecoms surge

- Sasol’s $2 billion sale

BIG BOARD LEAVES TRADERS FLOORED. The New York Stock Exchange is finally going all-electronic on Monday – for now at least. The bourse is putting on hiatus its so-called open-outcry trading system after two people at its iconic Wall Street building tested positive for Covid-19. That’ll put its own electronic-trading platform on the spot.

The floor is still the single-largest venue for trading NYSE-listed stocks, but these days three-quarters of the flow happens on electronic networks. NYSE Arca handles just 7%, Nasdaq and its affiliates 13%, and CBOE Global Markets’ four different engines between them have a more than 18% share.

If NYSE Arca can pick up the slack, it would be a bonus for the exchange’s tech ambitions. A prospering Arca, though, would leave Jeff Sprecher, who runs NYSE’s parent Intercontinental Exchange, with a dilemma. After 228 years of face-to-face trading, is it worth reopening the floor at all? (By Antony Currie)

EVERYONE’S DONNING A BLUE APRON. That, at least, is what investors in the $216 million meal-kit delivery service seem think. The company’s stock has jumped almost 500% this week. Sure, Blue Apron may benefit from social distancing. But it’s hardly the only option in a lockdown.

There are direct rivals like HelloFresh. Grubhub and DoorDash still bring orders from local restaurants. And grocery stores are ramping up both sales and deliveries; Whole Foods Market, for example, can offer both variety and quick door-to-door service.

Blue Apron was unprofitable since it went public in 2017. Since then, its financials have been going ever more stale. Annual sales have dropped by 48% and its shares have plummeted some 90% since its stock-market debut almost three years ago. Coronavirus fears can’t reverse all of that. (By Amanda Gomez)

FREE STUFF! AT A PRICE. Consumers facing self-quarantine are being consoled with special offers from big media companies. Confined viewers get entertainment; the companies get captive, grateful audiences.

The New York Times, with $1 billion in subscription revenue, is making coronavirus coverage free. The BBC is offering online lessons for kids who can’t go to school. Even Rupert Murdoch wants in, offering Fox News free. There are more colorful examples, too. Walt Disney released “Frozen 2” to its new streaming product three months ahead of schedule. Pornhub is giving Italian shut-ins free premium access.

Patriotic duty? There’s a self-serving motive too. Housebound consumers are in the ideal position to get hooked on new services. It wouldn’t be surprising if Disney+ and others cut their prices to exploit a Covid-19 land grab. The risk? Users later associate their brands with stir-crazy memories. (By Jennifer Saba)

TELECOM UTILITIES MERIT A VIRUS BUMP. To food, water, clothing and shelter, humanity must now add Wi-Fi. Vodafone says network traffic has jumped 50% in locked-down countries like Italy, as quarantined customers take refuge in Netflix and other streaming services. But at their worst this week, Vodafone shares were down a third year to date, against a 20% decline in the STOXX Europe Utilities index.

More data doesn’t necessarily mean more revenue, and travel bans hurt roaming charges – 1% of Vodafone’s top line. If millions lose their jobs, bills may go unpaid. But punters generally cut other services before broadband, meaning subscriptions shouldn’t shrink. And operators have proved their social worth by enabling remote working and letting governments use mobile data to see where people are during lockdowns. That might mean brownie points when governments next auction off pricey spectrum. In troubled times, catering to basic needs has greater value. (By Ed Cropley)

JONESING FOR CASH IN JOBURG. Sasol, a $1.3 billion South African manufacturer of motor fuel, rather optimistically hopes to raise $2 billion in a rights issue to pay down debt. With the market’s free-fall complicating things, underwriters Citigroup, JPMorgan and Bank of America are taking the necessary precautions.

There’s no price fixed on the deal. And the bankers can walk away if their internal committees disapprove, or if Sasol fails to generate $2.5 billion in asset sales to fix its balance sheet. Given those conditions, investors will want to see disposals before they believe the underwriting and equity hike are realistic. Barring that, Sasol may need to be rescued – perhaps by its top shareholder, South Africa’s sovereign wealth fund. Add one more name to the global bailout list. (By Dasha Afanasieva)

COGNITIVE DISSONANCE. Global pestilence? Pah! Say Credit Suisse, Santander, Credit Agricole and Swiss Re. Financial bosses, who are supposed to help solve the current crisis by doling out loans and insurance claims to virus-hit firms, reckon they can simultaneously keep investors sweet. Credit Suisse’s new Chief Executive Thomas Gottstein on Thursday touted rising private banking and markets revenues so far this year. Santander and Credit Agricole talked up V-shaped recoveries, while reinsurer Swiss Re is keeping open the option of a $1 billion share buyback.

Investors appear unconvinced. Shares in all four groups have roughly halved in the past month, trailing their own sector indexes and the broader STOXX 600 Index. Bullish noises won’t distract from the prospect of rising bad debt and lower interest rates, which squeeze the bottom line. There’s no credit for hope in today’s markets. (By Liam Proud)

CHINA’S CLEAN CARS BELCH SMOKE. Nio warned Wednesday it may struggle to stay in business. Tesla’s Chinese challenger had already been hammered by the withdrawal of subsidies and by the brutal slowdown in Chinese automobile sales. Nio had only $152 million in cash at the end of December, while it lost $406 million from operations – and that’s before the epidemic hit. Coronavirus may tip it over.

Given its profile outside of China, a Nio collapse would be mildly embarrassing for Beijing. But its state backing at present is limited to a verbal commitment of $1.4 billion from its municipal government, which now has bigger headaches. Anhui is one of the country’s poorest provinces. Central policymakers must worry about their inefficient state automotive champions, which are massive employers. National sales dropped 42% in January and February; new energy models retreated 60%. Investors are not betting on an imminent Nio bailout. That seems wise. (By Pete Sweeney)

LUFTHANSA CHARTS BAILOUT COURSE. With 95% of flights grounded by the virus, the question is how long the German carrier can endure its financial freefall. Keeping planes on the tarmac immediately eliminates variable costs like fuel and airport fees, which made up 63% of its 2019 expenses. Lufthansa reckons suspending marketing and investment and putting crew on unpaid leave will shrink the rest by a third.

That leaves 500 million euros of costs a month, against 5.1 billion euros of cash reserves and credit lines – enough to keep it airborne until Christmas. The taxman could help by deferring payments. But peers might not last as long: they generally have a higher fixed cost base as a proportion of the total, and Germany’s system makes unpaid leave easier than in most countries. Little wonder European governments are getting ready to hit the “bailout” button. (By Ed Cropley)


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