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US markets look to bank earnings, as Uber lays out IPO plans

bank banks banking financials

bank banks banking financials

It’s been a little bit of a lacklustre start to European trading this morning after a mixed set of China trade numbers for March. Exports showed a significant improvement with a rise of 14.2%, well above expectations of 6.5% and a vast improvement on the 20.7% decline in February.

Imports on the other hand were a disappointment declining 7.6%, missing expectations of a rise of 5.6%, and while they were better than the February numbers they remained in the red. This weakness in imports will be a concern for Chinese authorities as they suggest that internal demand is still weak. The rise in exports is more encouraging suggesting that demand for Chinese goods remains strong, and that while the global economy is slowing, there is still some demand out there.

Ahead of the US open investors will be paying close attention to the latest Q1 numbers from JPMorgan and Wells Fargo, two important bellwethers of the US economy.

Wells Fargo in particular will be of particular interest given the amount of domestic lending it does. The housing market is one area where the bank has struggled in the last 12 months, due to the weak housing market and the rising rate environment last year.

The bank is also still under Fed scrutiny for previous indiscretions. Its Q4 numbers were slightly better than expected, though this was mainly down to cost cutting measures. On all other measures, revenues were lower across the board from mortgages, to business and consumer lending. Profits are expected to come in below Q4’s $1.21c a share at $1.10c a share.

Other shares in focus will be Netflix after Disney announced that it would be rolling out a new streaming service Disney+ on November 12th this year, costing $6.99 a month, in a move that appears designed to deliberately undercut Netflix’s pricing model. The biggest problem Disney will have, in what is becoming an increasingly crowded market is one of limited consumer appetite for multiple subscriptions, particularly since Apple is also set to join the party as well.

Most consumers will probably have the budget for one or two add-on subscriptions, which means a range of content will be a really important determinant. Having the Star Wars and Marvel franchises is all well and good, but Disney will also need to reach out beyond this demographic, something that Netflix does really well, albeit at significant cost. The bigger question is whether it will be a Netflix killer, or merely another bit part player in what is becoming an increasingly fragmented market.

We also got the first sight of Uber’s plans to IPO next month, however all the glossy PR material can’t disguise the fact that the company continues to burn through cash at a significant rate.

The business has continued to grow with 91m users, but it still made an operational loss of $3bn, despite generating income of $9.2bn from its taxi business, though revenues here look to have plateaued. This makes it even more crucial that the business is able to diversify in other areas with Uber Eats also showing good growth potential, however both delivery and ride sharing apps are becoming an incredibly crowded and competitive market place. Revenues from its food business did rise to $1.5bn last year, a rise of 149%, but it will take more than that to start generating a return at a time when margins are likely to remain tight.

The company also has its fair share of problems on a regulatory level and while management seem keen to extoll the growth potential of the business it is hard to escape the feeling that the valuation of the business is somewhat detached from reality.

Management are hoping to raise $10bn which would suggest that the overall valuation could be somewhere near $100bn. This an eye watering valuation for a company that was last valued at around $75bn in a private fund raising in August last year.

This would suggest despite no evidence to the contrary that losses are likely to diminish, the company’s valuation has risen over 33%, at a time when the S&P500 has gone sideways and company earnings for this earnings season have been declining.

That seems utterly bonkers.

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