Tag Archives: Technology

Amazon to buy Whole Foods Market in $13.7bn deal


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Takeover of organic food specialist marks new push into grocery market after launch of Fresh delivery service

Amazon, the worlds most powerful online retailer, has taken a giant stride into traditional retailing, spending $13.7bn (10.7bn) to take over organic food chain Whole Foods Market.

The all-cash deal could be game-changing for the traditional supermarket business. Amazon has long had ambitions to move into the grocery business and launched its food delivery service, Fresh, in the US 10 years ago. It introduced the service in the UK last year after signing a wholesale deal with British supermarket Morrisons.

Amazon is the fourth biggest business in the US and accounts for 43% of online sales there. Whole Foods, founded in 1980, has about 460 stores, including nine in the UK where it has operated since 2004.

Supermarket share prices in the US and Europe went into reverse after news of the deal, while Amazons stock rose 3.5%, taking it close to $1,000 a share. The online retailers founder and chief executive, Jeff Bezos, is close to overtaking Bill Gates as the richest person in the world.

Amazon share price graphic

Walmarts shares dived 6%, wiping about $13bn off the value of the worlds biggest retailer as the deal ramped up pressure on traditional chains already hit by a rapid change in shopping habits. Shares in the UKs biggest chain, Tesco, and Germanys Metro were also down about 6% each.

This deal is potentially terrifying for other grocers, said Neil Saunders from retail analysis firm GlobalData. Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant. Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat.

Amazon revenue graphic

Until now, Amazon has had a limited impact on the grocery market. In the US, it still only accounts for less than 0.5% of grocery spending, according to GlobalData.

It only began experimenting with its first bricks and mortar food store in its hometown of Seattle in December last year. Buying Whole Foods will give it a trusted brand and an established network of stores where a basket of goods can be efficiently picked and packed for home delivery in a range of new cities. It will also give shoppers the option of picking up goods ordered online.

Whole Foods revenue graphic

Bryan Roberts, an analyst at TCC Global, said the deal with Whole Foods suggested that Amazon could now look to buy supermarket chains in its major markets which include the UK, France and Germany. He said: This is planting a huge flag that Amazon is incredibly serious about become a significant grocer.

Analysts at Bernstein suggested Morrisons and Sainsburys were possible targets in the UK alongside Ahold Delhaize in the Netherlands and Frances Carrefour.

But Roberts said Amazon already operated partnerships with a number of regional supermarkets in the US as well as Morrisons in the UK and would not necessarily need to buy them out in order to expand. He said the deal was likely to be focused on acquiring access to Whole Foods brands, supply chain and distribution network to power the growth of its Amazon Fresh delivery service.

Some analysts expressed surprise at the tie-up between Amazon, which has traditionally focused on cut-price deals, and the upmarket Whole Foods, which is nicknamed Whole Paycheck in the US. Roberts said the two firms customer bases were likely to overlap substantially.

Bezos said: Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy. Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades theyre doing an amazing job and we want that to continue.

John Mackey, the Whole Foods co-founder and chief executive, said: This partnership presents an opportunity to maximise value for Whole Foods Markets shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers.

Mackey will remain as chief executive and Whole Foods headquarters will stay in Austin, Texas.

Mackeys 0.03% stake in the business, which is listed on the Nasdaq stock market in the US, is worth just over $41m. He is likely to retain a stake in the business.

Whole Foods shares graphic

Whole Foods has had a huge influence on food retail in the US, bringing organic and health foods to the mainstream. But recently growth has stalled.

In February, it announced it would close nine stores in the US after six quarters of decling sales in a row.

The deal with Amazon comes days after Mackey attacked the hedge fund Jana Partners, which had acquired a 9% stake in the retailer. He described Jana as greedy bastards that would have to knock Daddy out if it wanted to take over the company.

Mackey said the business had changed because the more conventional, mainstream supermarkets have upped their game. He added: The world is very different today than it was five years ago.

Amazons move into the grocery market will pile on the pressure for traditional supermarkets around the world which have been affected by shoppers switching to online, smaller local stores and discounters such as Aldi and Lidl.

Lidl is opening its first stores in the US this week as part of a plan to open about 100 by the middle of next year, while Aldi is in the middle of a $3bn-plus expansion plan to take its total number of US stores to 2,000 by the end of next year. In the UK, the traditional big four supermarkets Tesco, Sainsburys, Asda and Morrisons have all lost market share in recent years to the rapidly expanding German chains.

Clive Black, a retail analyst at Shore Capital, said: Amazon is clearly getting into offline as well as online. It is not going to spend nearly $14bn and then close nearly 500 stores. This is going to cause an awful stir in the US and some of those waves will lap into the UK and beyond.

A good fit? How they measure up

Amazon

Roots Founded by Jeff Bezos in his Seattle garage in 1994. After spending a year building a website and sourcing stock, Amazon opens its virtual doors the following summer, billing itself as the Earths biggest book store with 1m books to choose from.

Value $477bn

Annual sales $142.6bn

Profits $2.6bn

Employs 341,400

Head office Seattle

Blue sky thinking Bezos is pouring his billions into his private spaceflight company, Blue Origin, developing rockets capable of shuttling the paying public into space.

Whole Foods

Roots College dropout John Mackey and his then girlfriend, Renee Lawson, scrape together $45,000 to open a natural foods store in Austin, Texas, in 1978. In 1980 they join forces with like-minded entrepreneurs Craig Weller and Mark Skiles to open the first Whole Foods Market.

Value $13.7bn

Annual sales $15.9bn

Profits $402m

Employs 60,000

Head office Austin, Texas

Blue sky thinking Mackey wrote Conscious Capitalism, which espouses a business philosophy that is good for suppliers, staff and communities as well as shareholders. A long-term vegan, he more recently co-wrote The Whole Foods Diet, which promotes the health benefits of veganism.

Read more: https://www.theguardian.com/business/2017/jun/16/amazon-buy-whole-foods-market-organic-food-fresh


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Just Five Stocks Account for Nearly 75% of the Nasdaq’s Plunge


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When it comes to the ongoing technology beat-down in the stock market, it appears not all shares are created equal.

Indeed, just five names account for nearly 75 percent of the drop in the Nasdaq Composite Index, which has fallen more than 2.1 percent since June 7. Meanwhile, the Dow Jones Industrial Average and S&P 500 Index are roughly unchanged over the same time frame.

Much of this dynamic is due to giants like Apple Inc., Microsoft Corp. and Goggle parent Alphabet Inc. falling as much as 6.5 percent. Those companies account for nearly 30 percent of the index’s weighting, and their outsize impact has driven the gauge lower even though the bulk of the stocks are doing fine.

This selloff was “way overdue given the extreme out-performance and positioning in technology shares,” Morgan Stanley analyst Michael Wilson wrote in a note to clients Monday, Shares of Apple, for instance, are still up 25 percent this year, giving them room to fall.

But while Wilson expects the drubbing to continue in the short-term, he doesn’t think the market has seen a peak in tech shares.

“We would be surprised if this is the end for technology stocks given the very strong earnings growth we are witnessing,” he wrote.

Analysts now believe performance in technology will depend on the economic outlook. And if conditions change, finance will be the likely beneficiary.

“If the current economic ‘Goldilocks’ environment persists, technology and other growth stocks should continue to outperform, despite today’s price declines,” Goldman Sachs Group Inc. analysts led by David Kostin wrote in a note to clients late Friday. “However, if investors recalibrate expectations for inflation and Fed policy to match the growth optimism suggested by the S&P 500 level, higher rates should lead to financial sector outperformance.”

For more on the global tech industry, check out the podcast:

    Read more: http://www.bloomberg.com/news/articles/2017-06-12/just-five-stocks-account-for-nearly-75-of-the-nasdaq-s-plunge


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    Nasdaq Megacaps Go Careening Off Course


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    A key stock market fault line buckled Friday as a group of momentum stocks that were fueling this year’s rally suddenly plunged.

    So abrupt were the losses in companies from Facebook Inc. to Apple Inc. and Netflix Inc. to Nvidia Corp. that they pulled the Nasdaq 100 Index to its biggest decline relative to the Dow Jones Industrial Average since 2008. Accounts of what spurred it ranged from bearish tweets by a short seller to a cautious note from Goldman Sachs Group Inc.

    The reversal on an otherwise placid day was violent enough to spur soul-searching in bulls after a rally that had added more than $500 billion to the market value of Apple, Alphabet Inc., Microsoft Corp., Amazon.com Inc. and Facebook in 2017. An index of momentum stocks last week completed its longest streak of daily gains since 1992.

    “The question is whether sentiment is shifting for the long term or just a temporary setback,” said Bill Schultz, who oversees $1.2 billion as chief investment officer of McQueen, Ball & Associates Inc.

    Click here to read about Goldman Sach’s note on tech stock volatility.

    Losses were significant. Even as the Dow eked out an 87-point gain as of 4:02 p.m. in New York, the Nasdaq 100 slid 2.4 percent, trimming a decline that at one point reached 3.8 percent, the most in a year. The Philadelphia Stock Exchange Semiconductor Index slumped 4.2 percent and at one point was down 6.1 percent, the most since 2014.

    Within the S&P 500, tech shares also trailed the full index by the most since 2008 as investors took profit in an industry whose gains this year through Thursday had almost tripled the S&P 500. Traders cited a rotation out of technology and into banks and energy, the biggest losers in 2017, driving up those groups up at least 1.9 percent.

    Sentiment was shaken early in the day when Robert Boroujerdi, Goldman’s global chief investment officer, warned that low volatility in Facebook, Amazon, Apple, Microsoft and Alphabet may be blinding investors to their risks. Those include cyclicality, tech disruption and regulation, which could exacerbate downside volatility should market conditions change.

    It didn’t help when Andrew Left of Citron Research tweeted about “frenzied casino action” in Nvidia. The Santa Clara, California-based chipmaker, up 50 percent year-to-date through yesterday, lost 6.5 percent and was earlier down almost 11 percent, the most since May 2011. It ended the day with the worst loss in the S&P 500.

    Julian Emanuel, a strategist at UBS Group AG, was more optimistic. Despite the potential for a summer setback for technology shares, the long-term picture remains upbeat, Emanuel, who is overweight tech stocks, said in a note Friday. What could give investors pause is a surge in inflows, expanding multiples, he said.

    Still, concern remains that the valuations of technology firms have gone too far. Amazon, Facebook, Apple have added at least 29 percent this year, compared with a 8.6 percent gain in the S&P 500. The Nasdaq 100 trades for 26 times annual earnings, the biggest gap to the S&P 500 since the end of 2015.

    “People have focused too much on market-share gains of the largest names but have forgotten that technology is cyclical,” said Ilya Feygin, senior strategist at WallachBeth Capital. “Valuations in tech sector are too high. It has a long way to go in underperformance.”

    For more on the global tech industry, check out the podcast:

      Read more: https://www.bloomberg.com/news/articles/2017-06-09/megacap-tech-stumbling-to-worst-day-verus-dow-in-seven-months