- WPP has announced that it’s gunning for THG
- Not for the company THG itself, but for a main growth driver
- It’s possible this will work – but how badly will it hit?
- THG Shares Up 8% As The Hut Group Rejects Low Ball Offers
THG (LON: THG) shares could come under more selling pressure in coming months as WPP (LON: WPP) says that it’s gunning for, chasing, a major growth centre in that company, formerly known as The Hut Group.
Now, whether this will actually work or not is an interesting point. But then it is on the back of such interesting points that trading decisions have to be made.
As we’ve pointed out before concerning THG formerly The Hut Group shares have had a torrid time of it since flotation. The actual operating business seems to have been doing just fine. Growing very nicely even. But there’s a definite thought in The City that Matt Moulding just isn’t the right person to be chairman of such a group – his interactions with the investing community lack a certain something. As a CEO, an entrepreneur, quite possibly stellar performances. But that property deal just before listing, the opacity over the Softbank deal, those haven’t helped. The complaints over short selling have also revealed what some think a certain naivety over how public markets actually work.
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But in the long term, what will determine the THG share price will be that actual performance of the underlying business. Which is where this new venture from WPP comes in. They, the advertising company, have realised that a major part of the THG growth story is “Ingenuity”, which is the platform upon which other brands can use the THG network to market their wares. Well, more than one company can supply a platform so why not compete there?
How well this competition is likely to fare rather depends upon what it is that we think such a platform consists of. It’s possible to think it’s some snazzy software, and that’s it. Or, alternatively, to look at the nuts and bolts of the business and realise it’s about logistics, stuffing things into cardboard boxes. Or, even, that it’s really about being able to attract the online audience in sufficient volume to create the necessary economies of scale to produce a profit.
So, how well do we think WPP might do at this? As one of the world’s largest advertising networks, we’d expect them to grasp the audience creation part. On the other hand, if that’s what they think is the only important part of the system and they neglect the physical logistics, then they might well not do well at all.
It’s even possible to think that any such platforms depend largely upon network effects – the meaning there being that any one that establishes itself will gain the vast majority of the market. Simply because people shop there, more stores will open, more stores opening will mean more shoppers.
Perhaps the real point here is that we’re not moving into a new stage of considering THG’s business and share price. Instead of it now being about what The City thinks of it it’s now possibly going to be the underlying business that faces challenges. It’s even possible that WPP will do well with their “Everymile” product.