Financial Times Europe - 02.11.2019 - 03.11.2019

10 ★ FTWeekend 2 November/3 November 2019

L E O L E W I S— TOKYO

Nintendostock ose more than 7 perr

centyesterday after quarterly profits

smashed consensus estimates and the

group’s bet on a cheaper version of its

Switchconsoleappearedtopayoff.

Compared with the same period a year

earlier, the group’s operating profits

more than doubled to Y67bn ($614m)

intheJuly-to-Septemberquarter.

Most analysts had forecast bouta

Y50bn and severalwere surprised that

Nintendo opted to leave untouched its

now conservative-looking Y260bn fore-

castforthefullyeartoend-March2020.

Theprofits jump was partly driven by

sales of almost2m units of the Switch

Lite, a slimmed-down model for hand-

held uselaunchedin Septemberwhich

has drawn in what the company said

was a high proportion of first-time con-

solebuyers,manyofthemwomen.

Also revealing, said analysts, were the

strong sales of older games based on

Nintendo’s in-house pantheon of Mario,

Zelda and Pokémon. The titles were

launched in the first year of the Switch’s

cycle but remain must-have games for

anyone buying the console. Because

these games are produced in-house, the

marginsforNintendoarehigher.

Less clear, however, has been the suc-

cess of Nintendo’s mobile strategy, an

area one analyst said suffered from

“excruciatingly slow” decision-making

and could be symptomatic of a wider

issuewithinmanagement.

In September, after years of build-up,

Nintendo launched a mobile version of

its flagshipMario Kart series— long

viewed by analysts as perfectly suited to

smartphone gaming. The version that

finally arrived in September appeared

primed for success; it was free to down-

load but deploys a variety of industry-

proven methods, including the contro-

versial “loot boxes” that emit a random

prize,tomonetisecontinuedplay.

But, critically, the game was not ready

at launch to run in multiplayer mode,

which to most gamers is by far the most

important element in the Mario Kart

series. The company has still not acti-

vated a multiplayer mode and average

revenues per player are expected to

remaindepresseduntilthathappens.

See Lex

Technology

Nintendo shares soar as cheap

Switch console gamble pays off

Reuters News contributes less than

3 per cent of the group’s earnings

T I M B R A D S H AW —LONDON

Google has struck a $2.1bn deal to buy
fitness-tracking pioneer Fitbit, as the
twoSiliconValleycompaniesteamupto
take on Apple’s fast-growing wearable-
techbusiness.
FitbitisGoogle’sbiggestacquisitionin
consumer electronics since it paid
$3.2bn for smart-home company Nest
in 2014. While Google’s offer represents
a 19 per cent premium to Fitbit’s closing
price on Thursday, it prices Fitbit at lit-
tle more than half of the $4bn valuation
atwhichitwentpublicfouryearsago.
“Fitbit has been a true pioneer in the
industry and has created terrific prod-
ucts,experiencesandavibrantcommu-
nity of users,” said Rick Osterloh, senior
vice-president of devices and services at
Google.“We’relookingforwardtowork-
ingwiththeincredibletalentatFitbit.”
The deal, which is conditional on
shareholder and regulatory approval,
will test Fitbit customers’ willingness to
hand over their health and fitness data
toGoogle.Thetwocompaniesyesterday
promised that Fitbit users’ data “will

not be used for Google ads” and custom-

ers will be able to “review, move or

deletetheirdata”.

Nonetheless, some Fitbit owners may

be concerned by the prospect of Google

owningintimate information bouta

their weight, sleep and menstrual

cycles, as well as their heart rate and

daily step count. Often the data are cou-

pled with precise location information,

which Fitbit uses to map its users’ work-

outs, as well as links to social networks

suchasFacebookandTwitter.

Google’s move is a bold one, at a time

when regulators in the US and Europe

are on high alert for anti-competitive

behaviour, data concentration and pri-

vacy abuses by big tech companies.

Some US presidential candidates have

threatened to break up tech companies

such as Google, Amazon and Facebook

orreversetheirpreviousacquisitions.

James Park, co-founder and chief

executive of Fitbit, said Google was an

“ideal partner”. “With Google’s

resources and global platform, Fitbit

will be able to accelerate innovation in

the wearables category, scale faster and

fitness trackers towards smartwatches

amid intensifyingcompetition from

Apple’sWatch.

Google has xpanded its hardwaree

portfolio in recent years to include Pixel

smartphones, smart speakers, Nest

thermostats and security cameras, and

various entertainment devices. But it is

yettoreleaseitsownsmartwatch.

Nonetheless, Fitbit appears to dupli-

cate many of Google’s existing software

platforms. In 2014, Google launched

Android Wear, an operating system for

smartwatches that was rebranded to

Wear OS last year. It also offers a health

tracking service, Google Fit. Despite

being used in smartwatches made by

Samsung, Huawei and Fossil, Wear OS

has failed to gaintraction. Google said it

“remainscommittedtoWearOS”.

“This is a pure data play,” said Nilesh

Chandra, a partner focused on health-

care strategy at PA Consulting, noting

tech companies’ broader push into the

healthindustry.

The deal, if approved, is expected to

close next year. Qatalyst and Fenwick &

WestadvisedFitbitonthetransaction.

Google enters wearables race

with $2.1bn Fitbit purchase

3 Challenge to Apple’s dominance of sector 3 Questions over users’ data privacy

RYA N M C M O R R OW

Alibaba’s sales blew past expectations
to grow 40 per cent in its latest quarter,
with profits more than tripling, as
China’s legions of shoppers kept spend-
ing at the online retailer despite a
broadereconomicslowdown.

During the three-month period ended
September 30, founder and chairman
Jack Ma stepped down rom his formalf
rolesatthecompany,leavingchiefexec-
utive Daniel Zhang to steer Alibaba’s
pushintoChina’shinterlandwhileman-
agingan array of business lines that
stretchfrombricks-and-mortarretailto
healthcare.
Yesterday’sresultscouldpavetheway
for asecond listing in Hong Kong for the
$460bn company, something that it is
reportedly considering for as early as
thismonth.
Alibaba’s sales rose to Rmb119bn
($16.9bn) in its fiscal second quarter, up
40 per cent from a year earlier and
aheadofanalysts’expectations.
Net profit more than tripled to
Rmb72.5bn for the quarter on the back
of a one-time gain related to its stake in
AntFinancial.
Maggie Wu, chief financial officer,

noted the flexibility that improving

margins afforded the company for

investmentintheirbusiness.

“Strong profit growth gives us the bul-

let to fight,” she said. “We’re going to be

smartwithhowwespendourmoney.”

Mr Ma left his successor with large

shoes to fill, outlining a series of lofty

goals for job creation and customer

growth. “We have set a goal for the near

term to serve over 1bn consumers, and

achieve at least Rmb10tn consumption

byfiscalyear2024,”MrZhang aid.s

Alibaba’s drive into new areas has

come with drawbacks for its margins,

especially in hotly competitive spaces

such as food delivery, where its Ele.me

unit has faced off in a cash-burning bat-

tle withMeituanDianping.

But its core commerce unit, where

revenue also grew 40 per cent year on

year to Rmb101.2bn, continues to

steady the ship. Roughly two-thirds of

all online sales in China transact across

its Tmall and Taobao marketplaces,

where Alibaba charges merchants per-

click fees to advertise their goods and

takescommissionsonsomesales.

Ad revenue grew 25 per cent year on

year and commissions rose 24 per cent

during the quarter, from 27 per cent and

23 per cent respectively in the previous

three-monthperiod.

Like Amazon in the US, Alibaba has

pushed into the marketfor running

onlinecomputersystemsforothercom-

panies.

Its cloud revenue has grown upwards

of 60 per cent each quarter for the past

10 quarters and rose 64 per cent year on

yearinthelatestperiod.

Regulators are hurting its content

business, where increasingly strict cen-

sorship has throttled the release of new

films and television shows. Still, sub-

scribers to its Youku video platform

grew47percentduringthequarter.

Alibaba’s US-listed shares rose more

than2percentinearlytrading.

Shareshad been held down by con-

cerns over a forced delisting in the US

and the potential for US pension funds

to divest, said David Dai, an analyst at

Bernstein.

Retail

Alibaba sales defy China slowdown

F T R E P O RT E R S

Thomson Reuters has rebuffed take-

overinterestinitsnewswire,according

to people familiar with the matter,

betting instead on a dealmaking

media executive to turn round the

168-year-oldbusiness.

Several would-be buyers had

approached the company and interme-

diaries in recent months, the people

said, adding that KKR-backed German

media business Axel Springer and a

group ncluding former Reuters editor-i

in-chief and ITN boss Mark Wood were

amongtheinterestedparties.

No talkswere active and hurdles

might make a deal impossible, accord-

ingtothepeople.

But they said the suitors saw an

opportunity to burnish a trusted, but

low-margin, global news brand t a timea

offluxatitsparentcompany.

Thomson Reuters, Axel Springer and

MrWooddeclinedtocomment.

Some would-be suitors see Reuters

News as an orphan asset after Thomson

Reuterslastyearsoldamajoritystakein

its financial data business to Blackstone

for$17bn.

The news operation contributes less

than 3 per cent of group earnings and

sits in a company now dominated by

legalandcorporateservices.

ButthedealthatcreatedRefinitivhad

also added to the obstacles to a sale,

according to people close to the com-

pany, its controlling family and poten-

tialbidders.RefinitivagreedtopayReu-

ters News $325m a year but only on con-

ditionithitcertainoutputtargets.

Non-compete clauses also limit

its ability to work with Refinitiv’s

rivals, closing off potential commercial

opportunities.

Thomson Reuters is expected to cut

its stake in the London Stock Exchange

within five years of next year’s comple-

tion ofLSE’s $27bn purchase f Refini-o

tiv, but the news supply agreement lasts

foralmost30years.

People close to David Thomson, the

group’s third-generation family chair-

man, say he is keen to keep Reuters

Newsbutnoteheisjustonememberofa

family with diverse views that controls

Thomson Reuters through Woodbridge,

an independent vehicle that might be

moreopentoasaleifitcreatedvalue.

Jim Smith, Thomson Reuters chief

executive, has also opposed a sale,tell-

ing the FT n August that while “every-i

body talks to everybody about every-

thing”,thenewsunitwas“notforsale”.

The company has begun a search for

Mr Smith’ssuccessor, however, encour-

aging some suitors who believe a new

CEOmaybewillingtosell.

Reuters journalists were angered

when Refinitivpulled some of the news

wire’s content rom the company’sf

Eikon terminals, in effect blocking its

coverage of the anniversary of the

TiananmenSquarecrackdown.

Andrew Edgecliffe-Johnson, Anna Nicolaou

and James Fontanella-Khan in New York

and Alex Barker in London

Media

Reuters spurns suitors for news wire

G R E G O RY M E Y E R —NEW YORK

ExxonMobil has warned that energy

investment will shift out of the US if the

government bans fracking, the drilling

technique that transformed oil pro-

duction but is opposed by three Demo-

craticcandidatesforpresident.

The oil supermajor has invested heavily

in the Permian Basin of Texas and New

Mexico, increasing volumes there by 72

per cent year on year. The once-mori-

bund basin was reinvigorated by hori-

zontal drilling and hydraulic fracturing,

or fracking, which frees hydrocarbons

fromtightlypackedshalerock.

Democrats Kamala Harris, Bernie

Sanders and Elizabeth Warren have

each called for a halt to fracking in

response to environmentalconcerns.

Ms Warren, a US senator from Massa-

chusetts,tweetedin September that she

would ban fracking “everywhere” on

herfirstdayintheWhiteHouse.

Over the past decade the US has more

than doubled crudeoil production ot

12m barrels a day, largely because of

fracking. Neither President Donald

Trump nor Barack Obama sought to

prohibitthetechnology.

The prospect of a sharp break in pol-

icy has unnerved energy executives. A

universal ban could drive oil prices to

$85 a barrel ompared with $55 in thec

UStoday,accordingtoTudor,Pickering,

Holt,aninvestmentbank.

“I think any efforts to ban fracking or

restrict supply will not remove demand

for the resource,” Neil Hansen, Exxon’s

vice-presidentofinvestorrelations,said

on an earnings callyesterday. “If any-

thing, it will shift the economic benefit

away from the US to another country,

and potentially impact the price of that

commodityhereandglobally.”

The comments came while Exxon is

on trial n New York after being sued byi

the state attorney-general over the way

it disclosed the risk of climate change to

investors. Rex Tillerson, chief executive

from 2006 to 2016, testified in the case

thisweek.

Exxon aims to lift oil production in

the Permian Basin to 1m barrels a day in

the next five years. Mr Hansen said the

company had only drilled a “few hun-

dred wells” out of a prospective well

inventory of more than 8,000. By the

end of the third quarter, it had 55 rigs

drillinginthebasin.

Asked by an analyst about political

risk related to the US election, Mr

Hansensaidit“highlightsthereispoliti-

cal risk almost everywhere where we

operate. And having a global portfolio

likewehavehelpsusmitigateriskinany

potentialorspecificjurisdiction.”

In practical terms, anyban on frack-

ing would probably be limited to federal

government-controlled land. While

states such as Wyoming and New Mex-

ico contain extensive energy resources

onfederalland,suchimportantstatesas

TexasandPennsylvaniadonot.

Exxon warns of rise in oil

price if US bans fracking

Fitbit

Source: Refinitiv

Share price ()













   

Sweat shop: wearable devices can compile information about their users’ weight, heart rate, daily step count and sleep —Mark Lennihan/AP

04 %

Sales growth in

latest quarter,

with profits more

than tripling

460 $ bn

Value of the

company, which is

reportedly eyeing

a second listing

make health even more accessible to

everyone,”hesaid.

Google’s offer of $7.35 per share for

Fitbit compares with its $20 initial pub-

licofferingpriceinJune2015.Afterclos-

ingatahighof$47.49soonaftertheIPO,

Fitbit’s shares have languished during

the past two years as it has attempted to

refocus its business away from low-cost

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