Daily Tech Snippet: Tuesday, August 25

• A Plunge in China Rattles Markets Across the Globe: Concerns about China’s ability to be a powerful engine of global economic growth have added to worries about the potential impact of higher interest rates in the United States, driving stocks sharply lower in Asia and Europe on Monday. When trading opened in New York, the major market measures went into what was essentially a free fall. While the steepest losses ended within minutes, share prices spent the rest of the day sharply rising and reversing course multiple times. When the day’s roller-coaster ride ended, the benchmark for stocks, the Standard & Poor’s 500-stock index, was down 3.9 percent. That left the index off 11 percent from its May high, in what in market parlance is called a “correction,” its first since 2011. On Monday, the Shanghai composite index closed down 8.7 percent. In Europe, benchmark indexes in Germany, Britain and France fell nearly 5 percent or more. A number of emerging markets were also lower, with leading indexes in Brazil and Indonesia both down around 4 percent. In the United States, the Dow Jones industrial average plummeted 1,000 points before regaining ground. Major US indices recovered some ground but still ended the day down over 3.5% each. The Treasury market was a beneficiary of the fear in stocks. The demand for bonds pushed the yield on the benchmark 10-year Treasury note to as low as 1.90 percent before it settled at 2.01 percent. The recent market tumult began two weeks ago when the Chinese government unexpectedly allowed the value of its currency to drop, partly in response to indications that the country’s economy is weakening. The Chinese moves played into the continuing drop in the price of oil, which has taken the price of a barrel of crude oil down 65 percent over the last year. On Monday, the price of oil, as measured by a benchmark New York contract, dropped below $40. The selling in China has accelerated despite extraordinary government intervention in the last two months aimed at propping up share prices. On Sunday, the Chinese government said that the country’s pension funds would be allowed to invest in stocks for the first time. But the slide on Monday highlighted that the new policy, and several similar recent moves, have not been successful. Many investors are now hoping that the central bank, the People’s Bank of China, will cut the ratio of deposits that banks are required to keep on reserve in a bid to encourage lending and spur economic growth.


• How the stock selloff could kill off some tech unicorns: With so much uncertainty and market volatility, Silicon Valley firms could postpone initial public offerings, cooling a white-hot market for venture funding that has fueled the most lucrative environment for startups in history. Already, executives at RainDance Technologies, a firm that makes genomic tools to detect cancer and other diseases, announced Monday they have pulled their plan to go public, according to Reuters. And the big question is what will happen to the hundreds of startups -- a record 131 are valued at more than $1 billion -- that are now all dressed up for IPOs but with no place to go. "Tech stocks have been getting crushed the past 6 weeks. Many names are down 25-50% from their highs. Today was very tough," Gurley wrote in a tweet last week. "One might reasonably assume that this would have an adverse impact on late stage private market liquidity and valuation. I certainly do. If so, we may be nearing the end of a cycle where growth is valued more than profitability. It could be at an inflection point." Known as "unicorns," the venture-funded firms with valuations of more than $1 billion have exploded in number to 131 companies valued at a total of $485 billion, according to venture capital research firm CB Insights. The sheer quantity of unicorns has for months caused concern of a startup-bubble, with investors racing to put money into bleeding edge innovators and their many imitators, when logically not all will thrive or even survive.


• Visa says its users more likely to complete online purchases than those using PayPal: Visa said on Monday online shoppers using its payment service are 17 percentage points more likely to complete their purchases than those using PayPal. Visa Checkout, which allows shoppers to store their payment information without having to re-enter it every time they make a purchase online, said 66 percent of its enrolled customers completed their transactions after putting items in their shopping cart compared to 49 percent of PayPal's Express Checkout customers. The data was collated for Visa by retail analytics firm ComScore. PayPal's online payment service offers a similar convenience by allowing customers to log into their accounts on a merchant's website. Paypal has not seen this report yet, said Anuj Nayar, senior director of platform, merchant and next gen commerce engagement. Nayar said in addition to PayPal Express Checkout the company has launched a new online payment service called PayPal One Touch, which makes using PayPal faster on any device with a single touch. "Initial reports indicate that One Touch radically improves checkout conversion for merchants and time to checkout for consumers beyond anything else available in the market today," he said. Retailers and payment industry experts have often blamed the high rates of unfinished online transactions, after shoppers add items to their shopping carts, on the tiring process of re-entering payment information every time one makes a purchase. "What has become more and more pronounced is as the size of the screen gets smaller, whether it's a tablet, mobile or a watch, the less likely it becomes a consumer will finish his purchase," Sam Shrauger, senior vice president of Visa's digital solutions, told Reuters.


• Jabong biggest loss-maker among top Rocket Internet ventures: Rocket Internet-incubated Indian fashion and lifestyle venture Jabong has become the top money losing initiative for the German emerging markets and Europe focused internet company. Jabong’s operating loss margin rose far ahead of Southeast Asian lifestyle e-commerce firm Lazada and Latin American e-commerce marketplace Linio in the first quarter of 2015, making it the most operating loss making property among Rocket Internet’s top ventures. Jabong had EBITDA loss margin of (-) 56 per cent last year, an improvement from 2013 when it posted (-) 68.5 per cent. This possibly signals how the firm is trying to push its sales faster with more discounting. This could also possibly reflect net revenues are failing to keep pace with operating expenses. Last year, in the same quarter Lazada sported the biggest EBITDA (earnings before interest tax and depreciation and amortisation) loss margin with Jabong and Linio being neck to neck, as per data shared by Rocket Internet. Also the average selling price of third-party vendors appears to be around 15 per cent higher than that of what Jabong direct e-tails to the customers. The average transaction value (including what it sells directly and products sold by other merchants) in Q1 stood at Rs 1,690 compared with a tad over Rs 1,500 in Q1 2014 and for full calendar year 2014. In the same period, average basket value of products sold directly by Jabong has risen marginally to around Rs 1,423. Third party vendors now represent around one in three transactions on Jabong every day. Meanwhile, Jabong was valued at around $480 million as of last December in its last funding round, according to Rocket Internet’s annual report. This means the firm was valued at around Rs 3,050 crore or 2.3 times its GMV for the year.