Must read: Netflix, Royal Mail, Wetherspoon

GLOBAL MARKETS

European markets have opened higher, with the FTSE 100 back above 7,500. Strong earnings have helped to lift the Stoxx 50 to a near one-month high. 

Last night, Netflix Inc (NASDAQ:NFLX) shares rallied sharply after-hours – the streaming giant added 13.1 million subscribers in Q4, enjoying its best quarter of growth since the pandemic. Nasdaq 100 futures are pointing to a strong open on Wall Street thanks to its robust earnings.

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ROYAL MAIL 

The regulator Ofcom is calling for a national debate on the future of the UK’s postal service. It said options to reform Royal Mail include reducing its service from six days a week to five which would save £100-£200 million, or cutting it down to just three days which could save £400-£650 million. At the moment, the postal service is bound by the universal services obligation (USO), which requires Royal Mail to deliver letters six days a week and parcels five days a week to every address in the UK. Other options being considered by Ofcom include changing the speed of letter deliveries or days. 

Royal Mail has long had its calls to scrap the government’s USO rejected. Now it looks like the tide could potentially be turning. Although there is still considerable opposition including from the Communication Workers Union (CWU) which argues a three-day service would ‘destroy’ the company, as well as the Postal Affairs Minister Kevin Hollinrake who said the government is committed to a six-day service. 

The company, owned by International Distributions Services (LSE:IDS), has been facing a series of painful setbacks like the postal strikes, a fine from Ofcom for missing delivery targets and a cyber security incident. It has also been struggling with heavy operating losses on the back of a long-term structural decline in letter demand and the loss of its 360-year-old monopoly on delivery parcels from Post Office branches. Ofcom said letter volumes have halved since 2011, raising existential concerns about the future of Royal Mail and prompting calls for a drastic overhaul of the business to revitalise its finances and operations to ensure it doesn’t become ‘unsustainable.’ 

Shares in IDS are trading higher today, reflecting optimism towards the regulator’s openness towards change at the embattled postal business. But shares are still sharply lower than the recent highs seen in 2021 during Covid.

JD WETHERSPOON 

In the 25 weeks to 21 January. Wetherspoon (J D) (LSE:JDW) reported like-for-like sales up 10.1% year-on-year, with an 11.8% jump in bar sales and a 10.4% increase in slot/fruit machines. Chairman Tim Martin said the company and the hospitality industry have ‘seen a consistent but slow recovery following the pandemic.’ He warned that labour and energy costs remain far higher than before Covid. Martin also highlighted the tax differential between pubs and supermarkets, which he described as unfair, an argument he has frequently made in the past. 

Wetherspoon had a successful festive period with strong sales around Christmas. The pub chain’s affordable price point means it can successfully weather cost-of-living pressures. However, the pub chain is not immune to the pressures from inflation which have increased its costs, negatively impacting margins. 

Shares in Wetherspoon have rallied sharply over the past 16 months, rebounding from the lows around September 2022. While shares are up almost 75% in the past year, the stock is still down around 50% from the pre-Covid 2019 highs. That highlights how its investors are still suffering from the pain of lockdowns and travel restrictions during the pandemic which hampered the hospitality industry.