China stocks rally again, Netflix shares soar on strong results, Boohoo signals break-up and Future CEO doesn’t last long in the job

“It’s been a rocky ride for investors exposed to China but patience is being rewarded,” says Russ Mould, Investment Director at AJ Bell.

“Having this year gone from being widely unloved to delivering big gains over a short period thanks to the promise of major economic stimulus measures, China’s stock market has moved up and down faster than a newly oiled seesaw in recent days. One minute everyone is excited about Beijing’s ‘do whatever it takes’ mentality to improve the economy, the next minute shares are down amid scepticism about when we’ll see the benefits emerge.

“The needle has now moved back to bullish territory despite the latest figures showing economic growth has slowed again. What’s boosted shares is China’s central bank talking about a plan to encourage non-bank financial institutions to invest in the stock market.

“It’s the latest attempt to put the Asian country back on top – but as always, the key question is whether these stimulus initiatives will have a long-lasting effect. The real estate sector needs significant repair work, consumer spending needs to improve and businesses need to invest more. That’s a tough ask.”

Netflix*

“Cynics said there is no loyalty among streaming platforms and everyone who wants to use them has already signed up. Netflix’s latest results show that is not true. It continues to attract more people, keep existing customers happy, while also diversifying its income streams.

“Netflix beat earnings forecasts for the third quarter in a row, sending its shares up 5% in after-hours trading. Importantly, it signalled plans to put prices up in more territories, which should provide another kicker to earnings.

“Making incremental changes to the cost of a monthly subscription is a big test for a company’s pricing power. Netflix’s platform is so engrained in people’s lives that it should be able to push up prices without causing a rush of people cancelling their membership. If people do think twice about a higher price, Netflix has a clever back-up plan as its cheaper advertising-led tier could be enough to make people stay. They might have to put up with regular marketing messages, but that is standard practice for all streaming platforms now.”

*You can find further AJ Bell analysis of Netflix’s results here.

Boohoo

“The starting gun has been fired on the break-up of Boohoo. A review of each division to ‘unlock and maximise shareholder value’ is code for corporate restructuring and that points to a sale or demerger of some of its assets.

“Selling Karen Millen and Debenhams is the obvious starting point, leaving Boohoo with a sharper focus on a younger target market.

“The company is under pressure to stop the rot with its disastrous share price since 2021. It has suffered from heightened competition, changing consumer buying habits, cost pressures and regularly falling short with meeting earnings expectations. These issues have weighed on the company’s valuation.

“When Boohoo talks about unlocking shareholder value, it means getting someone to put a fairer price on certain divisions by separating them from the parent group. In doing so, they wouldn’t carry the stigma and valuation discount that comes with being part of a flagging retail group.

“It looks like chief executive John Lyttle has decided he doesn’t want to be around for the break-up. He’s done everything he can to save the group and his strategy hasn’t worked, so will bow out before Boohoo morphs into something different.

“It’s fair to say he won’t leave with his head held high. Trading is still awful, with a shocking performance outside of the UK.

“A new debt facility might look as if it gives Boohoo some breathing space but nearly half of it is repayable by next August. That means it had better find some solutions to the problems soon.”

Future

“Future’s CEO didn’t last long in the job. Jon Steinberg was only appointed to the top role in April 2023 but he’s already handed in his notice, saying it’s time to move back to the US with his family.

“Investors have taken this to be a bad sign, dragging the shares down more than 10%. Future used to be a highly acquisitive business, snapping up titles to expand its empire of media assets which were then used as a platform to earn commission on product or service sales.

“The cost-of-living crisis and high interest rate environment knocked the company off track and it has been trying to regain momentum ever since. More recently, it has been shutting down the weaker parts of its business to save money and improve group margins, while at the same time trying to revive growth.

“Investors will be asking why Steinberg isn’t sticking around to see through this strategy – has he spotted problems down the line or has he simply been offered a better opportunity elsewhere?”

These articles are for information purposes only and are not a personal recommendation or advice.