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Facebook Buys 10% Stake in Reliance Jio, Netflix Adds 16m New Subscribers

Professor of Financial Economics and Part-time Value Investor, Transfin.
Apr 22, 2020 1:22 PM 5 min read
Editorial

Facebook invests $5.7bn in Reliance Jio for c.10% stake. Government might create fund of funds for MSMEs and provide them with equity support. ICICI Bank reveals exposure to troubled Singapore oil trading firm. Netflix reports 15.77m new subscribers, most of them from outside the US. Oyo announces 25% pay cut for India employees; some to be sent on furlough. Snap shares rise 20% as demand surges and user base hits 229m.

 

 

COVID RELIEF

Government might create fund of funds for MSMEs and provide them with equity support.

Support Systems

A decision is expected soon on relief measures to help MSMEs tide over the pandemic's impact. The MSME Industry has reportedly pitched a plan to create a ₹10,000cr ($1.3bn) fund to buy up to 15% equity in crisis-hit, but otherwise well-rated, MSMEs that will list on bourses.

 

At the same time, the Centre is mulling over a proposal to create a ₹10,000cr ($1.3bn) fund of funds for small businesses to make downstream investments in venture capital and alternative investment funds that will, in turn, invest in MSMEs. [Financial Express]

 

US close to passing $450bn deal that includes support for small business loans.

Speaking of state relief for small businesses, the US appears to have reached a breakthrough in a $450bn deal, a large portion of which injects cash into small business loans and a fund called the Paycheck Protection Program. Senate Democrats and Republicans have reportedly reached a consensus on the plan, and the White House has called on Congress to pass it. [Business Insider]

 

BANKING ON BANKS

Banks issue notices to shopping malls for loan repayments.

You’ve Got Mail

PSBs have shot a letter to owners of shopping malls asking them to raise invoices for the month of April and ask their tenants to make rental payments in the escrow account of their respective banks. Mall associations, expectedly, have opposed the move and said this could force many defaults, leading to NPAs worth ₹25,000cr ($3.27bn). [BS]

 

ICICI Bank reveals exposure to troubled Singapore oil trading firm.

Bad Business

Hin Leong Trading is a Singapore-based oil trader that has bumped into financial difficulties of late. On April 17th, the company filed for protection from debtors.

 

It is also a company that ICICI Bank has apparently lent money to. $100m, to be precise, $75m of which was secured through inventories. Today, the private lender disclosed its exposure, and this sent its shares down by over 8%. [Livemint]

 

FACEBOOK & JIO

Facebook invests $5.7bn in Reliance Jio for c. 10% stake.

Dance of the Giants

Jio Platforms, a wholly-owned subsidiary of Reliance Industries Limited, today announced the signing of binding agreements with Facebook for an investment of ₹43,574cr ($5.7bn), valuing the platform at a pre-money valuation of $65.95bn. Facebook’s investment gives it around 10% stake in the company, making it the largest minority shareholder. [The Verge]

 

Read Reliance's media release about the deal here

 

"One focus of our collaboration with Jio will be creating new ways for people and businesses to operate more effectively in the growing digital economy,” said Chief Revenue Officer David Fischer and VP for India Ajit Mohan.

 

The development ties up with the recent news that Reliance Jio and tech giant Facebook are reportedly in talks to build a ‘super app’ of sorts.

 

Extra Crunch

An insight into the “Money Statement” in today’s Jio Facebook deal release here. [@TFinMedia

 

NETFLIX

Streaming giant reports 15.77m new subscribers, most of them from outside the US.

Netflix and COVID-19

Netflix reported Q1/20 numbers on Tuesday with an imposing 15.77m quarterly net subscriber additions. The sharp uptick in net adds was largely attributed to worldwide home confinement measures (and stay at home = more video streaming).

    

Revenues grew an impressive 27.6% YoY to $5.77bn but were largely in-line with estimates despite stronger-than-expected subscriber progression. This was entirely due to the strength of the US Dollar, which pressured reported revenue from international markets. (Note that of the 15.77mn net adds, only 2.31mn came from US & Canada.) [CNBC]

 

Expects viewership and subscriber additions to decline later this year.

Free Cash Flow: Not Iust a Flash in the Pan

Netflix generated $162m in free cash flow in the quarter driven largely by growing revenues and operating margins only partially offset by growth in content investments. Netflix’s rigmarole towards positive free cash flow is a heavily watched spectacle on Wall St. In that context, heightened focus on ‘Netflix Originals’, which is now showing up in loftier operating margins presumably bodes well for the free cash flow profile going forward.

 

The company also told shareholders that it expects viewing and subscriber additions to decline going forward in July-December as stay at home orders are expected to be eased and lockdowns lifted. [Reuters]

 

If you're interested in reading Netflix's letter to its shareholders, here it is.

 

COMPANIES

Oyo announces 25% pay cut for India employees; some to be sent on furlough.

N(One For Everyone)

Hospitality platform Oyo Hotel and Homes on Wednesday announced 25% pay cut, effective for April-July 2020 payroll for its India employees in the wake of the coronavirus pandemic. 

 

It also put multiple others on leave with limited benefits for four months beginning May 4th. 

 

Employees who earn less than ₹500,000 ($6,587) per annum will not be affected by the cuts. [ToI]

 

Snap shares rise 20% as demand surges and user base hits 229m.

United by Snap

Shares of Snap, the parent company of popular social media platform Snapchat, surged nearly 20% after its Q1 revenue increased 44% YoY to $462m.

 

Daily active users (DAU) on Snapchat also rose 20% YoY to 229m in the first quarter ended March 31st. The figure stood at 218m in the fourth quarter. [Reuters]

FIN.

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