FTSE Friday: AJ Bell’s platform missteps, more trouble for London retail and a quick look across the pond

Companies covered this week:

• Shaftesbury final financial results ahead of acquisition
• AJ Bell annual results
• Apple vs Twitter

AJ Bell: Heading in the wrong direction?

The pandemic was a wonderful time for AJ Bell (LON:AJB) and its peers. People were flush with cash with nowhere to spend it and nowhere to go. Markets were thriving, but turbulent. Many millions of new investors entered the world of stock picking.

To capture some of these new market entrants, AJ Bell has spent a lot of money on new products. Investment in Dodl - a cheap, simple investment app for beginners, launched in April - and Touch - a platform for financial advisers due to launch next year - sent technology costs up 27% to £33m in the year to September.

But has this investment been worth it? Dodl has a few major issues:

1. Dodl doesn’t stand out. The investment app market is already very crowded and incumbents are sponsored by the deep pockets of private equity. Dodl does not offer the best prices or the broadest market access. To compete, AJ Bell is having to spend a lot on marketing - £15m of marketing costs in the period were 15% higher than the same time last year.
2. Dodl customers don’t have large enough portfolios. Customers of trading apps like Dodl tend to have very small portfolios (the stocks on offer don’t lend themselves to great diversification) and making money on small portfolios is very hard - especially when trading costs are almost negligible. The stream of new customers is slowing down with the markets. Net customer inflows fell from £7bn in the year to September 2021 to £5.8bn in the year to September 2022.

That said, Touch might yet prove an interesting innovation. Accessing larger portfolios through financial advisers could help to elevate assets under management and revenue per customer - which fell in 2022.

AJ Bell is a nice business. It has invested in helping private investors make the most of the stock markets in a responsible and strategic way and offers a broad range of products to suit many different needs. But without the exorbitant fund fees like Hargreaves Lansdown or the risky leverage business like IG, it’s less enticing for investors than it is for customers.

Shaftesbury: Retail is bouncing back, why aren’t REITs?

Shaftesbury (LON:SHB) - the retail landlord which owns 16 acres of property in London’s West End - might be due to leave the stock market in early 2023 (its board accepted an all-share merger offer with peer Capital and Counties back in June), but it’s financial results still make enlightening reading.

London’s high end retail market is thriving again, after its post-Covid decline which saw Shaftesbury’s property valuation fall by £194m last year. The company says that footfall and spending are ahead of 2019 levels across hospitality, leisure and retail. That’s reflected in a return to 2019 occupancy rates and a £99m increase in the value of Shaftesbury’s properties.

But the respite from economic turbulence has been short-lived, which may explain why many commercial property landlords (most of which are listed as real estate investment trusts) are trading at big discounts to their net asset value. Rising interest rates and a deteriorating macroeconomic outlook have sent the trajectory of Shaftesbury’s property valuation back down again - the portfolio’s value rose 7.5% in the first half of the year and declined 3.6% in the second. The outlook is clouded by the threat of recession (Brits spend less money in the West End when their wallets are stretched), but Shaftesbury and its soon-to-be parent company Capco benefit significantly from tourism, which continues to rebound after Covid lockdowns and travel disruption. The outlook might not be as bad as many shareholders seem to fear.

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Apple vs Twitter

We’re heading across the pond for a moment in this week’s FTSE Friday because of drama encircling $AAPL - news relating to the biggest listed company in the world is normally worth paying attention to.

The story starts where many stories seem to start these days - with Twitter.

Since Elon Musk completed his acquisition of the business on 27 October, he has not made many friends. Staff have been fired, leading many customers to raise security concerns about their personal data (many of the security team were among the staff to go). Tesla shareholders have been concerned about Musk’s split focus. Advertisers are annoyed that previously banned accounts have been welcomed back.

And now Musk has taken the fight to Apple. The tech giant is one of Twitter’s biggest advertisers, reportedly spending $40m in 2022 so far. But now the company (like many other big brands in the US) has withdrawn its spending amid concerns that Twitter under Musk’s rule will become a more hostile.

Does Musk care? It’s hard to tell. His ambitions for the company are to turn it into a platform where free speech can be enjoyed by all. News, ideas and stories can be shared, providing a social hub which is free from political bias. And this new free, fair, wonderful Twitter will be funded by subscriptions rather than advertising.

But aggravating Apple causes problems beyond ads revenue. If the app’s privacy policy continues to be eroded, Apple might ban it from its app store, meaning the 1bn iPhone users wouldn’t have access to Twitter on their mobiles.

And therein lies the crux of Musk’s battle. He claims Apple has far too much authority over app downloads and should be regulated like a monopoly. His reason for this claim is clear: Apple receives 30% of all sales made on apps in iPhones. This means if Twitter begins to start selling a subscription product, Apple will walk away with 30% of any sales made within the app.

He isn’t the first person to cry foul play. In 2021, Apple was involved in a very public legal battle with Epic Games, the owner of the immensely popular mobile game Fortnite. Epic pulled its games out of the Apple store in protest to the 30% fee and sued Apple for failing to offer alternative in-app purchasing methods. Apple won the case and has continued to bat away claims on its services revenue.

But perhaps the involvement of the world’s richest man, owner of one of the world’s largest social media platforms will change the game. Subscription revenues are the future for Apple - the company can’t afford to anger the regulators.