Tech Companies’ Worries Increase over Brexit

This is not investment advice. The author has no position in any of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.

Codemasters as an Example

The game studio Codemasters (LON:CDM) (creators of DiRT, GRID, ONRUSH and F1) has roughly 450 employees across their 3 locations in the U.K. with another 57 employees in Malaysia. They wrote back in 2017 of the uncertainty of the action, noting challenges such as tax implications, financial fallout, and most importantly attracting and retaining employees from the EU, who previously could travel with ease. When considering this, the complexity increases exponentially when moving physical goods as well.

Courtesy: Codemasters Group Holdings PLC

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CNBC Reported today that Salesforce (NYSE:CRM) is warning their investors and employees of possible fallout of Brexit. In their annual filing this week Salesforce noted that Salesforce has begun to mitigate risk in the U.K. region by moving away from a U.K. centric model, to one that utilizes their office in Dublin more. The report notes that the entire European market is only responsible for 18% of its sales, but their entire European market will be affected. Every international company will disclose currency risk, but rarely will they disclose their intentions to move operations as a result of the risk.

Steve Eisman this afternoon in an interview with Bloomberg, also reaffirmed what many of these companies are thinking; there is too much uncertainty in the short term to invest in the U.K. right now. With the Brexit deadline of March 29th quickly approaching there are two options left; accept the third offer that will be presented next week or extend the process of leaving the EU further. This economic uncertainty is not favorable to any company or investor, as when investing, you receive a premium for risk. However, the magnitude of the risk for investing in the U.K. is still unknown. Eisman phrased it in the interview “no company I know is going put money into the U.K. in that period until they have a certainty of what the end result will be”.

This brings us back to Salesforce and other multinational companies; they have the option to centralize where they feel necessary and have the right to do so. Investors can also avoid investing in the area until there is an actual plan in place for the form of Brexit the world will see. Interestingly enough the British Pound Sterling rose on the news of possibly extending the time for Brexit. The list of the largest companies in the U.K. is dominated by financial institutions and energy resource companies, which are consistent enough and profitable enough to wait and see how negotiations go before making any drastic moves. It would be fascinating to see how a company like Codemasters reacts to any extension given the constant requirement for talent and international IP that needs to be licensed for them to release a product to the market.