Slack IPO, Web Privacy and Sell on Monday

The IPO of Slack in the USA has received a lot of media coverage. This is one of those technology stocks that is on what at first glance is a sky-high valuation. Slack provides workplace collaboration software and last year had revenues of $400 million, and lost $140 million. The market cap is now around $20 billion which means it is valued at about 50 times revenue. Those are the negative numbers. The positive aspect is that it roughly doubled revenue in each of the last two years. With such growth are profits or losses important? But it’s surely a case of investors piling into a hot story, i.e. following the herd.

There’s an interesting article by Megan Boxall in this week’s Investor’s Chronicle comparing the current mania for technology stocks with the dot.com bubble of the 1990s. She reports that 2018 saw the highest proportion of loss-making company IPOs since 2000 and the market is awash with private equity money being ploughed into early stage loss-making companies.

Well I lived through the dot.com era and managed to sell a software business and retire before the boom became a bust. The current mania for technology stocks certainly reminds me of that era. Growth certainly adds to value, but growth in profits not revenue is what matters. Many early stage companies can grow revenue given enough investment but often they never make a profit. And when the realisation comes, investors drop the company like a hot potato. The key question is to look at when a company will stop consuming cash and at least look like it will breakeven. Before that point, it’s simply a speculation. Investors in the dot.com boom realised later on that they were going to lose money on most of their punts and the whole sector became untouchable for some years.

The other question to ask about Slack is whether it has some unique technology that cannot be easily copied. I am not sure it does on a quick review.

ICO and Adtech

I mentioned in a blog post om April 10th my concerns about privacy after I was bombarded with advertising for SuperxxDry products after mentioning the company in my blog. The Information Commissioner’s Office (ICO) has now published a report which says the Adtech industry must mend its ways. Basically personal data is being shared without the users’ consent, possibly to hundreds of advertising firms.

The ICO has effectively warned the industry that they must reform themselves as the use of personal data has been unlawful. See https://tinyurl.com/yxk7d494 for more information and to read their report. This will clearly affect any company operating in this sector including such giants as Google. But it is surely a move that is to be welcomed by anyone concerned about privacy and those not wanting to be bombarded by irrelevant advertising.

Buy on Friday, Sell on Monday

I have noticed over the last few months that my portfolio tends to rise on Mondays and fall on Fridays. It certainly did this week again. It appears that investors pile in to small cap stocks and investment trusts on Monday morning, but lassitude sets in on Fridays.

Researching the internet seems to suggest that this is a known pattern. So clearly it is best to be contrarian and buy when prices are temporarily down on Friday and avoid buying on Monday. So that’s my tip for today.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Debenhams PrePack, Dunelm Trading, ASOS and Privacy

Department store operator Debenhams (DEB) has been put through a pre-pack administration. It’s been bought by a new company formed by its secured lenders. Mike Ashley of Sports Direct is furious. His company invested £150 million in the shares of the company in the hope of taking it over, which will now be worthless. He had some choice words to say on the subject which included that it was an “underhand plan to steal from shareholders”, “as normal politicians and regulators fiddled while Rome burnt”, and that they “have proven to be as effective as a chocolate teapot”. I have much sympathy with Mike Ashley and the other shareholders as I have consistently criticised the use of pre-pack administrations in the past. It is an abuse of legal process. Why could it not have been put through an ordinary administration as the company appears to be a going concern, albeit with excessive debt, or Ashley’s offers considered?

Mike Ashley had previously made various offers to refinance the business including a pledge to underwrite a rights issue, but to no avail. It is not clear why his proposals were rejected, but as usual with pre-packs it is probably just a case of the lenders seeing the opportunity to make more money from a pre-pack. Ashley suggests he might try to challenge the pre-pack although that will be difficult now the deal is done.

What went wrong at Debenhams? Basically an old-fashioned retail format where sales were relatively stafic compounded by very high and onerous property leases and massive debt.

Contrast that with the trading statement from Dunelm (DNLM) this morning. This company sells home furnishings from out of town warehouse sites (not on the High Street like Debenhams) and have moved successfully into “multi-channel” operations with a growing on-line sales proportion. Overall like-for-like revenue in the third quarter is up by 9.8% with on-line sales up 32.1%.

Retailer ASOS (ASC) also announced their interim results this morning. Sales were up 14% but profits collapsed with margins declining and costs increasing while they invested heavily in technology and infrastructure. Competition in on-line fashion is increasing but you can see that such companies are taking a lot of business from High Street retailers, particularly in the younger customer age segment. The world has been changing and Debenhams has been an ex-growth business for many years. I do most of my clothes shopping, but not all, on the internet which shows even oldies are changing their shopping habits. I have never held Debenham shares although I do hold some Dunelm and have held ASOS in the past. But declining businesses with high debt are always ones to avoid however cheap the shares may appear.

Readers of my blog should be aware that after many years and growing amounts of spam I am changing all my email addresses. You can either contact me in future via the Contact page of my web site (see https://www.roliscon.com/contact.html ) or via the Contact tab on this blog.

It’s taking me some time to notify all the hundreds of organisations I am signed up with of my new email address. But that was almost frustrated when one of them sent out an email to all their clients using cc. rather than bcc. They have reported themselves to the Information Commissioner! But will they take any action? I doubt it. Thankfully the company in question used one of my older addresses which will soon be deleted. Such idiocy is not acceptable.

Another problem I am having of late is that if I mention a company or look at its web site, I then subsequently get bombarded with web advertising. So I am now seeing repeated advertisements for SuperDry products when I have absolutely no interest in such products. Despite removing cookies they still appeared. This is the kind of problem that is annoying people about the lack of privacy in the modern world and which needs tackling.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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