Daily Brief: General Electric Admits Investors Probably Have A Point About Its Overcrowded Business

Daily Brief: General Electric Admits Investors Probably Have A Point About Its Overcrowded Business

over 2 years ago3 mins

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General Electric announced on Tuesday that it’ll be splitting into three separate companies, as the jack-of-all-trades continues to take social distancing guidelines admirably seriously.

What does this mean?

General Electric (GE) – which was one of the world’s biggest companies by market value until the early 2000s – has been struggling to bounce back ever since the 2008 financial crisis. That’s not for lack of trying, mind you: it’s previously sold off both its pharmaceuticals manufacturing and aircraft leasing businesses in an effort to boost its bottom line. Those moves… didn’t work. Desperate times call for desperate measures, then: GE’s planning to split up into three entirely separate companies by early 2024 – one focused on aviation, one on healthcare, and one on energy.

GE sectors
Source: The Wall Street Journal

Why should I care?

For markets: Less might be more.

GE is a conglomerate, meaning it operates several unrelated businesses. But bigger isn’t always better: investors reckon conglomerates would be more profitable if they did just one thing well, rather than splitting their attention across multiple projects. That means GE isn’t necessarily as valuable as the sum of its parts, which is partly why it’s underperformed the US stock market by an average of 11% every year since 2009. Finally, though, that underperformance could be coming to an end: investors initially sent GE's shares initially soaring by 12%.

GE stock

The bigger picture: Not all splits are so simple.

Japanese conglomerate Toshiba is reportedly thinking about splitting into three separate companies too: it’s been under pressure from activist investors – those who use their significant stake in the company to influence change – to separate its infrastructure, devices, and microchip businesses. Still, that parting of ways might be trickier than GE’s: many of Toshiba’s businesses are wrapped up in issues of national security, meaning the Japanese government is likely to cast a wary eye over whoever takes control of them.

Keep reading for our next story...

Paypal Reported Worse-Than-Expected Results, As Ebay Ditches Its One-Time Partner

PayPal image

PayPal reported worse-than-expected results late on Monday, as the payment app realizes that the only way to get over eBay might be to get under Amazon.

What does this mean?

PayPal’s former owner, eBay, spun the payment company off six years ago, but they’ve kept working closely together ever since. Now, though, eBay is transitioning toward its very own payments system. That ghosting was evident last quarter, when eBay’s users spent 45% less via PayPal than they did the same time the year before. Throw in the fact that payments on PayPal’s cash transfer app Venmo grew by a weaker-than-expected 36%, and the firm’s total revenue only climbed by 13%.

PayPal’s revenue outlook for the rest of the year was disappointing too, mostly because the company’s worried that supply shortages and the return of in-store shopping could dent ecommerce activity. Needless to say, investors aren’t confident either: they initially sent its stock down 5%.

PayPal stock
Source: Google Finance

Why should I care?

The bigger picture: A more supportive relationship.

PayPal reckons Venmo could be its biggest source of revenue in the future, and it’s laying the groundwork to make that happen: the company just announced that Amazon would be introducing the transfer app as a payment option next year. And since Venmo has been supporting crypto payments since April, the move might bring Amazon one step closer to learning some new tricks too…

Zooming out: Crypto’s the place to be.

Amazon would be wise to think about integrating crypto payments: the market’s now worth over $3 trillion, with bitcoin and ether each reaching all-time highs on Tuesday. That might partly be down to the launch of the first US bitcoin-ETF last month, which has introduced more people to the OG cryptocurrency and inspired hopes that more crypto ETFs are in the pipeline. The US Federal Reserve’s still skeptical, mind you: it warned investors this week that risky assets like crypto are particularly susceptible if the still-peaky economy takes a turn for the worse.

Crypto market
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