🚗 Hertz's stock conundrum

Wednesday, June 17, 2020 by Robinhood Snacks | Disclosures

When the ref is your dad

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Hey Snackers,

Some positive employment news: the Supreme Court issued a landmark decision protecting LGBTQ workers from employment discrimination. The Supremes ruled 6-3 that it's illegal under the 1964 Civil Rights Act. Happy Pride Month.

Stocks rallied Tuesday on a record jump in US retail sales, which soared 18% in May — but that's compared to April. When the economic plunge is record-breaking, the record-breaking monthly comebacks come easier. Compare this May to May of last year and spending was actually down 6%.

Download
1. Europe wants to punish Apple for playing favorites with its apps

"You are the Apple of my eye"... Apple to its own apps. Apple's App Store is a massive marketplace for the world's scrolly-tappy desires. But in addition to owning that marketplace, Apple also competes in it with its own apps: Apple Maps, Books, Podcasts, etc.

  • iControl: In addition to pre-downloading some apps on your iPhone, Apple often displays them higher than arguably more-worthy competitors on its App Store. For instance Apple Music is currently #1 and Spotify comes up #5 for a "music" search.
  • iMoney: Apple also takes a 15%-30% cut of paid downloads, in-app purchases, and subscriptions in non-Apple apps.
  • iAngry: That rubs some the wrong way — especially the EU, which has launched 2 antitrust probes to determine whether Apple violated competition laws.

Silicon Valley dominates Europe's scrolly-tappy ways... The EU hates that Apple, Facebook, Google, and Amazon are making bank off hundreds of millions of European users — without really paying any European taxes. And it hates the home-court advantage:

  • The EU is investigating Apple for rival-squashing with its App Store and Apple Pay policies. If Apple is found guilty, Europe could fine it for a 10% cut of its annual sales.
  • Preemptive defense: On Monday, Apple announced that the App Store generated $519B in 2019 revenues for global developers.
  • In press release speak: "The results encapsulate...the dynamic, competitive, and flourishing app economy, which has unleashed a torrent of innovation across 175 countries." Key word: competitive.
THE TAKEAWAY

This is a wider "platform-player" issue... The EU is investigating other American tech giants too, saying they're abusing home court advantage on their own platforms. BTW — the US government is also running its own antitrust investigations. Platforms like the App Store have created an explosion of opportunity and wealth, but they seem to be playing favorites.

Sell

Everybody hertz... But Hertz didn't cry when its stock inexplicably soared after its bankruptcy announcement. The airport rental car classic was hurting pre-corona, thanks to competition from peers like Enterprise and ride-hailers. Then came this head-scratching timeline:

  • May 22: Hertz files for bankruptcy, sitting on $19B in debt and 700K cars — most of which haven't felt human touch on their steering wheels since March.
  • May 26: Hertz stock is trading at a low of $0.56, after filing with no deal in place from the creditors it owes.
  • June 8: Hertz shares have soared 887% to $5.53, as investors inexplicably pile into the stock.
  • June 15: Hertz announces plans to sell up to $500M in new shares, which it would issue to capitalize on its stock price.

Lenders get paid first... The "absolute priority" rule in bankruptcy means that creditors (whom Hertz is indebted to) must get back the money they lent before shareholders get a penny. That's why Hertz had to warn potential buyers of its new stock that they will likely lose all their money.

  • "Worthless": Mentioned 5 times in Hertz's filing, in reference to what its stock could become.
  • "Risk": Mentioned 49 times, in reference to what investors are involving themselves in.
  • Translation: We hope you'll buy these brand new shares for X dollars... but they might actually be worth $0 — Hertz.
THE TAKEAWAY

Investors aren't always rational... So stocks don't always move in sensical ways. People traditionally buy because they believe a company will generate greater cash flows in the future (and so, they believe, share prices will rise). But stocks also rise for reasons unrelated to actual/future value: if there are more buyers than sellers, a stock's price rises. The "buying reason" — whether that's thoughtful investment analysis or straight up speculation — still affects the stock's movement either way.

What else we’re Snackin’
  • Game: Fortnite-maker Epic Games is close to raising $750M at a $17B valuation, according to #PFWTM.
  • Stang: Ford unveils the 2021 Mustang Mach 1 as a limited-edition "pinnacle" of its pony car lineup.
  • Vacant: Hilton is cutting 22% of its global corporate workforce — Hyatt and Marriott also had to downsize.
  • Deliver: DoorDash partners with CVS to deliver over 3K CVS items (including health, household, and grocery products).
  • Euro: Square snatches up Spanish peer-to-peer payment app Verse to try to replicate its Cash App success in Europe.

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Snacks Daily Podcast

BRB, recalculating my post-pandemic net worth...

Oil giant BP says its oil assets are now $17.5B less valuable — not because it thinks the economy won't bounce back for a long time, but because it thinks oil will be replaced faster.

Tune into our ridiculously digestible pod to learn how the pandemic is accelerating the transition to less carbon-emitting alternatives (like electric vehicles).

Wednesday
  • Report on US housing starts and building permits for May

Disclosure: Authors of this Snacks own shares of Apple and Square

ID: 1218561

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