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LVMH shares drop 7% on fears of cooling luxury market in China


Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Every Industry Is Now A Technology Industry

Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming

LVMH shares drop 7% on fears of cooling luxury market in China

LVMH Moët Hennessy Louis Vuitton SE sought to soothe investor concerns about fears of a possible slowdown in the crucial Chinese luxury goods market after its shares dropped more than 7% on Oct. 10.

The share price drop came despite the company reporting robust third-quarter revenue growth the day earlier after the stock market closed. The French fashion and luxury company's shares fell 7.1% to 265.30 on Paris' Euronext stock exchange. Shares of other luxury houses including Gucci-owner Kering SA, Hermes and Burberry Group PLC also fell in the wake of a broader market sell-off.

Investors are concerned that China, which accounts for about a third of luxury goods sales, could experience a slowdown. The uncertainty has arisen as a consequence of a U.S.-China trade war as well as a loss of spending power among Chinese consumers reflecting a decline in the value of the yuan and a drop in the Chinese stock market. In addition, some analysts believe stock price valuations of many big luxury houses are at high levels and therefore offer limited upside.

In a conference call with analysts Oct. 10 to discuss third-quarter earnings in 2018, LVMH said it was not particularly worried about Chinese demand cooling. "As far as Chinese customers are concerned, there's a little slowdown that we are talking about, moving from high teens to mid-teens" in revenue growth, said Jean-Jacques Guiony, CFO of the Paris-based maker of Louis Vuitton handbags, Krug Champagne, Marc Jacobs apparel and other luxury products. "So it's nothing really noticeable."

Guiony added: "We're optimistic about the future of Chinese customers. So basically, the forecast was not particularly pessimistic or negative on China. The real numbers are not particularly bad."

The Chinese consumer is crucial to the fortunes of LVMH and other producers of high-end consumer products. In 2016, luxury consumption dropped to its lowest level since 2009, according to a report by McKinsey & Co.

But a rebound has occurred in recent months. In 2018, the luxury goods market is expected to grow by 6% to 8% to reach €276 billion to €281 billion, according to a forecast by Bain & Co. Mainland China is anticipated to account for the lion's share of that increase, growing by 20% to 22% this year, based on constant exchange rates, according to Bain.

But other concerns are giving investors pause. "Although results look solid and the market's anticipated slowdown in Chinese spending has yet to materially manifest itself, we believe investors are growing wary of the luxury sector's elevated valuations, prompting a sell-off," Morningstar Equity Analysts said in a note. "The shares are still trading at a moderate premium to our fair value estimate even after a 7% decline at the time of writing."

Earlier in October, the share prices of LVMH and Kering dropped sharply on reports that Chinese authorities were cracking down on travelers returning home after purchasing luxury items overseas, including imports that exceeded the duty-free limit. The authorities' move may be an effort to hamper a practice known as "daigou," whereby Chinese tourists sell foreign-bought luxury goods at a hefty profit domestically.

The practice of daigou is not something that LVMH welcomes or promotes, Guiony said on the conference call, adding that the company tries to fight the practice by limiting the number of products customers can buy at LVMH stores, especially in Paris.

Guiony noted that Chinese consumers tend to spend a higher proportion of their income on luxury products, compared to U.S. or European consumers. "Hence, higher volatility," said Guiony. "It has disproportionate consequences on their propensity either to purchase or not."

In the earnings call, LVMH said: "While we are pleased with our performance to date, we remain cautiously confident as we look ahead to the rest of the year in the context of monetary and geopolitical uncertainties."

Watch: Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Steve Piper shares Power Forecast insights and a recap of recent events in the US power markets in Q4 of 2017. Watch our video for power generation trends and forecasts for utilities in 2018.

Technology, Media & Telecom
Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Oct. 08 2018 — Both buyers and sellers of traditional linear TV advertising, not including connected TV or over-the-top video, are moving toward the adoption of programmatic trading. In 2017, Kagan estimates that $690 million or 0.9% of total linear TV spend was traded programmatically. Within the next five years, that figure is expected to climb to $9.76 billion or nearly 12% of total linear TV advertising revenue. MVPDs are forecast to trade the greatest percentage of their ad inventory programmatically in 2022 with 30% of ad revenue from programmatic trading.

Kagan defines programmatic trading as being automated and data-enhanced, not just one or the other. Trading may be through a private or open marketplace and does not have to be through an auction, which is more common in digital video advertising.

There are several issues holding participants back from programmatic trading. Unlike digital programmatic marketplaces, where there is a seemingly unending supply of ad inventory, linear TV has a finite supply. Demand for TV inventory exceeds the supply, so there is still an attitude of "If it isn't broken, don't fix it." TV ads are also bought well in advance, not immediately.

While many agencies have experimented with the programmatic trading of linear TV, not all are on board. Many of the advertisers and agencies are interacting directly with the supplier platform rather than going through a demand-side platform, or DSP, today. In their experiments, the agency needs to use separate platforms to aggregate inventory and tie it together, which is a lot of work.

The lack of inventory is one factor holding back programmatic trading. The only way it takes off is to make linear TV inventory available in some type of buyer platform that can combine the various supply platforms. It is even more complicated when the buyer wants to bring in connected TV (OTT).

Agencies do like the automation capabilities of programmatic, particularly where the process takes a lot of time. An algorithm may do better in areas such as weighting estimation, the first pass at scheduling and the negotiation process as well as postings and billings. The process of buying inventory is not difficult, but computing where a buyer will be able to find its preferred audience is. Therefore, interest in automating the planning and analysis to find an optimal audience is high.

We forecast a gradual uptake for programmatic trading with continued testing in 2018. Broadcast stations and networks, cable programmers, and MVPDs need to add more inventory to programmatic platforms before agencies begin using it in earnest. It will take time for all parties to feel comfortable transacting in a new way.

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Every Industry Is Now A Technology Industry


And every company is now a technology company.

Sep. 28 2018 — As machine learning (ML), artificial intelligence (AI), and robotics become commonplace and enter the operations of mainstream organizations, leadership teams are finding that failure to harness and leverage AI puts them behind the competition. Repeatable tasks are carried out by bots in a fraction of the time and employees are more focused on adding value, which means companies on the forefront of technology can be more reliable, more user-friendly, and faster to market.

In this highly disruptive environment, one traditional truth of business has withstood, or has perhaps even guided, these technological advances: above all, the customer experience is king. More than ever before, businesses have effective technologies at their fingertips to quickly and effectively address customer pain points, while at the same time dramatically improving their internal operations.

At S&P Global Market Intelligence, we strive to get beyond the buzzwords and truly deliver essential insight. And second to this, we strive to adopt real operational efficiencies into our delivery that are paralleled by the workflow efficiencies we promise to our customers. To that end, we are committed to remaining on the cutting edge of emerging technologies, first through optimization, then automation.

Download a recent analysis of how we’re applying new technology like natural language processing to structure data, robotic process automation to deliver insights faster, and predictive analytics to stay ahead of the market.

You can also view this analysis in Spanish, Portuguese, Mandarin, and Japanese.

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Natural Language Processing – Part II: Stock Selection

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Technology, Media & Telecom
Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming


The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Sep. 20 2018 — Spending on home entertainment is rising toward levels not seen since 2004, when consumers spent $24.37 billion building massive home-video libraries of DVDs and VHS cassettes. Since then, the optical-disc market saw more than a decade of significant declines as consumers shifted to digital entertainment. By 2012, total spending on home entertainment was down to $20.13 billion, with $4.13 billion coming from online video while DVDs and Blu-ray discs accounted for $12.88 billion and multichannel PPV/VOD contributed the remaining $3.13 billion.

Fast forward to 2017 and the mix of consumer spending has changed significantly. Consumers spent a total of $22.62 billion on home entertainment from multichannel, online and disc retail/rental sources. Online spending accounted for $13.00 billion of that total while spending on discs dropped to $6.84 billion and multichannel PPV/VOD shrank to $2.79 billion.

While the data might seem like good news for traditional providers of home entertainment, a key component of the growth in digital spending is the rise of subscription video on demand. The majority of online spending is going to over-the-top services like Netflix, Hulu and Amazon Prime, which increasingly have focused on creating original programming (mainly episodic TV) rather than licensing content from Hollywood studios.

Removing subscription streaming from the consumer spending pool paints a less favorable picture for traditional content providers. In 2012, consumers spent just $1.43 billion on non-subscription online video purchase/rental, and a total of $17.44 billion excluding the SVOD component. By 2017, while consumer spending on online video overall had risen to $13.00 billion, some $10.47 of that came from streaming subscriptions versus $2.53 billion from online video purchase/rental, and total home-entertainment spending was just $12.16 billion excluding SVOD.

Spending on sell-through home video peaked in 2006 when consumers shelled out $16.53 billion for DVDs and VHS cassettes. Since then spending has declined by hundreds of millions (sometimes billions) each year. In 2017, consumers spent $6.50 billion on DVD and Blu-ray sell-through and electronic sell-through. This seems to suggest that people are becoming less and less interested in adding to their home-video libraries and are turning to the more affordable streaming options. The story is similar for the home-video rental segment, which saw consumer spending peak in 2001 at nearly $8.45 billion before dropping to $2.87 billion by the end of 2017.

This has to be a somewhat unsettling trend for the major film studios, and is likely a key factor in shifting their strategy to focus on major franchise films and low-cost genre fare. The former tend to have broad worldwide appeal and can still move enough video units to help offset their high production and distribution costs. The low-cost genre fare, on the other hand, may be more risky and not sell as well internationally, but has a fair chance to break even. If the latter films lose money, the successful franchise films typically cover the losses.

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