And another one bites the dust. Brendan Iribe, co-founder of the virtual reality start-up Oculus, said on Monday that he was leaving Facebook, four years after the social media group acquired his company. There is a growing exodus of executives and investors should worry.
In only a year almost all the founders of the start-ups that Facebook acquired have left. In September Kevin Systrom and Mike Krieger, co-founders of Instagram, the photo-sharing platform, both departed Facebook, having been bought in 2012. In April Jan Koum, co-founder of WhatsApp, the instant messaging service bought by Facebook in 2014, said that he was leaving. And in March last year Mr Iribe’s fellow co-founder, Palmer Luckey, also left. To lose one founder looks like misfortune, to lose five looks like carelessness.
Most say something suitably Californian about the reasons for their departure. But most leave with a recurring theme — Facebook no longer want these products to be treated as a separate entities.
Take Instagram. Photos that were shared to Facebook through the Instagram app used to include a label that identified the photo as an Instagram photo to encourage them to visit or download Instagram. This label was recently removed, making it appear as though people were posting photos directly to Facebook.
The issue is that Facebook’s user base is stagnating, which is affecting advertising revenue. Daily active users in Europe fell from 282 million to 279 million in the second quarter and remained flat in the US and Canada. It missed advertising revenue projections, with $13.04 billion compared with forecasts of $13.16 billion. The group is trying to combat that by luring people back via apps such as WhatsApp and Instagram.
The danger with that tactic is that Facebook risks damaging the appeal of the apps. Young people are using Facebook less but still use Instagram and Snapchat. If Instagram becomes an extension of Facebook, younger users will stick with Snapchat. After all, what teenager wants to be on the same platform as their parents?
Those in their mid-twenties to early forties, who were Facebook’s first users, are being pushed away by boredom and privacy issues. However, investors had been shrugging off these issues and concerns, such as the Cambridge Analytica scandal. That changed on July 26 when the company missed its earnings forecast in the second quarter, saying investors should expect a sharp slowdown in revenue and operating profit next year. The stock plummeted, losing about $120 billion in market capitalisation, which was the biggest one-day value plunge of a listed company in US history.
The shares now trade at 21 times expected earnings, far below its median of 26 times since the start of last year.
Facebook’s recruitment of Sir Nick Clegg, the former deputy prime minister, as its head of global affairs and communications may make sense as he remains well connected in Brussels, where regulators are starting to get tougher on privacy rules. Yet even he is unlikely to solve all Facebook’s growing list of issues.
ADVICE Sell
WHY Shares are priced to full potential, while privacy issues, an exodus of executives and a dwindling number of users all spell trouble ahead
Superdry
Who would buy shares in Superdry now? Perhaps only an investor prepared to take a firm view on who they believe is right in the row over strategy between the fashion chain’s founders and the management team (Deirdre Hipwell writes).
In the past week an extraordinary argument has broken out between Julian Dunkerton and James Holder, who co-founded the brand, and Euan Sutherland, chief executive of Superdry, and the board of directors.
There are several issues. The share price has tanked by about two thirds since the start of the year. No one is happy about that, least of all the co-founders who own about 28 per cent of the group, barring stock promised to employees if the price passes an £18 a share threshold, which seems ambitious at this stage. Both Mr Holder and Mr Dunkerton have been placing shares to drive their external investments, so the fall in the price is pretty grim for them.
Performance has been lacklustre, with last week’s profit warning blamed on warm weather — no one is buying coats — poor currency hedging and investment in strategy.
It is this new strategy that has most upset Mr Dunkerton. The “product guy” who helped drive Superdry’s early success, believes it makes no sense to be pursuing fast fashion, with four seasons and product drops throughout the year. He thinks fewer core ranges in stores and many more designs online is the better plan. So sure is he that he wants to come back to a business he left in March and has hired Cenkos, the broker, to try to curry favour among shareholders.
He might find the going tough. Aberdeen Standard Investments, the second largest investor, has upped its stake in the past week, as has Artemis Investment Management, and backed the chain’s diversification and innovation programme and its push into womenswear. Peter Bamford, chairman, said the board considered Mr Dunkerton’s complaints and decided they know better. It would appear, at present, that there is an impasse, unless more shareholders press the board to listen to Mr Dunkerton, or the City dismisses his complaints.
Superdry’s profit will be down this year with little real visibility ahead. While it is cash generative and paying dividends, the chain is only part way through an as-yet unproved diversification plan that is suddenly facing a lot of awkward questions.
With no obvious support for Superdry’s share price, it is probably wise to hold or avoid. It could be a risky buy for those prepared to gamble that the fallout from the row will lead to some action, possibly even corporate activity. A Dunkerton-led buyout bid, anyone?
ADVICE Hold
WHY Nothing to lose from waiting to see what happens
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