Markets Today: Big British tech fails to live up to its American peers

Facebook falters… finally 

The digital ads market has soared in 2021 as the Covid-19 bounce back filtered into company marketing budgets. Facebook (US: FB) - like its social media peers Twitter (US: TW), Snap (US: SNAP) and Alphabet (US: GOOGL) - has reported a surge in ads spending in the second quarter of 2021. Revenues rose 56 per cent to $29bn. 

But the outlook is poor. Facebook executives have said that revenue growth will now be almost entirely generated through price increases rather than an increase in the number of ads delivered - not a reliable way of generating sales. 

The numbers come at a tricky time for the social media giant and its peers. The relentless pressure posed by constant media stimulation is increasingly being associated with mental health challenges - Simone Biles' dramatic exit from the individual and team gymnastics competitions at the Olympics has drummed up even more questions about the negative effects of social media. Privacy concerns are also problematic and Facebook pointed out that Apple’s iOS security changes earlier in the summer have already had a big impact on the company’s ad targeting, with more problems likely to come in the second half. 

The company’s share price is still up 38 per cent in the year to date, but there are signs that the direction of travel might be changing. That would be good news for Google - companies aren’t going to stop spending on digital advertising. Continued growth at Facebook seems to be dependent on Mark Zuckerberg’s ‘metaverse’ - an all inclusive space for commerce, community and computing. What that means for revenues, though, it is hard to say. 

Robinhood set to begin trading at lower end of target range 

A $32bn valuation for just under $1bn of annual revenues isn’t a bad IPO. Robinhood (US: HOOD) may have priced its market debut at the bottom end of targets, but it’s valuation has almost certainly benefited from the huge hype generated by the meme-stocks debacle of the last year - Robinhood’s platform has helped send the share prices of underperforming companies surging.

The company reserved up to 35 per cent of its shares for customers of its platform - a move which executives have said might lead to share price volatility in the coming months. And those retail investors are said to be sceptical about the outlook for the company especially given its big valuation.  

But the market cap values each of the company’s customers at $2461 - not an unfair number considering the average account size as of June this year was estimated at $3500. Robinhood is one of a new breed of investment platforms well placed to disrupt the fast-evolving investment landscape. 

Read more: 

Robinhood is cashing out on the retail boom - but risks abound

Further reading: Robinhood’s effect on stock market quality

BT and Sage disappoint again

Turning the mighty ship that is BT (BT.A) is not an easy task. Philip Jansen has done a good job to strip back some of the dead wood to leave a slightly more streamlined looking business, but acceleration is not going to happen overnight. Quarterly results for the first three months of BT’s financial year showcase those challenges. Revenues declined 3 per cent to £5bn and pre-tax profits were down 4 per cent to £536m - short of expectations. 

The quarter has also been incredibly expensive. The 5G mobile spectrum auction sent capital expenditure up 63 per cent to £1.5bn, strip out the spectrum spending (which isn’t an annual capital cost) and capex rose 9 per cent to just over £1bn. 

Back in May we questioned whether either BT or Sage (SGE) had the spark to capitalise on an increasingly tech-focused connected world. The latter, which also reported quarterly numbers today, is also showing signs of age. Revenues rose just 3 per cent to £1.3bn in the first nine months of the financial year. Investors can take comfort in the fact that recurring revenues are now 92 per cent of the total top line, but the progress comes as too little too late.