Friday Aug.16, 2019

The Russian spy and the ecommerce CEO

_Not all heroes wear Walmart smiley face pins_

Hey Snackers,

50th anniversary of Woodstock vibes (FYI, Jimi Hendrix was paid the most of all the artists at the original concert. $18K).

Investors chilled on trade war worries as stocks barely budged Thursday.

Burn

GE plummets 10% after it's basically called the next Enron

Haters gonna hate… But Harry Markopolos is more of a “revealer.” The whistleblower analyzes companies and calls out fraud — he did it with Bernie Madoff and Enron. Now he’s focused on GE, whipping up a 175-page report that took 7 months to research. Here are the highlights of what he handed to regulators about the 127-year-old, Schenectady-founded American icon:

The number: $38B — That's how much fraud he's noticed. It's 40% of GE's entire value, and Harry's calling it just “the tip of the iceberg.”
The culprit: Accounting problems with its oil and gas unit he thinks go back to 1995.
The potential: Harry thinks it's enough to make GE "probably file for bankruptcy." Bold claim.
Counter-point: GE 100% disagrees and says Harry's just trying to drop its stock.

Enron made history... The energy giant used to enjoy $63B in assets. Then some "accounting irregularities" showed up. Four months later in 2001, Enron filed for bankruptcy, becoming the biggest company to fall apart in American history — 21 execs were convicted, 4K lost jobs, and an entire accounting firm went down with it. Harry says GE is using the same "accounting tricks."

Not all turnarounds survive... GE's gone deep into self-care, trying to turn itself around for years — it hired its first non-GE-ish leader (an outsider CEO) and tried to sell off non-critical business lines (like its venture capital arm with hundreds of startup investments). But the stock still lost half its value in the last year and a half as the Eat-Pray-Love turnaround journey suffers. Harry's accusations reveal how deep a true turnaround sometimes has to go.

Drama

Overstock surges back on strange CEO slash Russian spy situation

Can we talk about this?... Overstock has historically been that harmless go-to shopping site where your mom snags a duvet cover for 70% off four years ago and still talks about it. But shares suffered their worst 2-day drop ever and then bounced back 16% Wednesday. It all goes back to the CEO Patrick Byrne's cryptic relationship with a woman he met at a 2015 conference.

Turns out she was Russian spy... They began a 3-year relationship, and now she's in jail serving 18 months. Here's what kicked off the stock drop this week:

Overstock shockingly announced the romance via press release on Monday.
Patrick then went on TV, discussing the "men in black" and US agents he worked with regarding the 2016 election Russia investigation.
He wasn't done on Wednesday. Overstock issued another press release claiming Patrick was "the notorious missing Chapter 1" in the whole investigation. Confusion dropped shares further.

Overstock highlights the risks of personality leadership... Big leaders can define big strategies. But Overstock's been in this situation before where Patrick's choices shake up shares. When he developed a passion for cryptocurrencies, he decried Overstock no longer a retail company, but a blockchain one. Except it is a retail company. The stock's volatility reflects some of that confusion.

Shop

Walmart becomes Wall Street's white knight

Needed that... Trade war drama has been hitting markets. Then Walmart reported earnings and dropped a mic — it's still the #1 company by sales in America (by almost 2x as much as #2).

You can shop for just about anything in this report... Investors took it as a signal that the tariff-palooza worries might not be as impactful as feared.

Revenue and profits beat expectations: They came in at $130B and $3.6B.
Ecommerce is Walmart's favorite child: The chain's epic 1-day shipping promise for 75% of the US population helped boost online sales up 37% (that's pretty good).
Offline shopping's not too shabby, either: Every store was cranking out sales numbers about 2.8% bigger than the same time last year. Plus, the white collars at Walmart think the next quarter will have equally strong growth.

Houston, we have no demand problem (yet)... We've got a paradox right now: economists and bond investors predict an economic recession, but you're seeing awesome econ stats like 3.7% unemployment and growing GDP. Because Walmart's so engrained nationwide, its numbers are another reading from the economic thermometer that things are healthy-ish in the economy.

What else we’re Snackin’

Heard: Tesla's Elon Musk hints at an upcoming partnership with Spotify for its drivers
Blockbusting: Disney's Toy Story 4 becomes its 5th movie this year to pass $1B at the global box office
IPO: Cloudflare, the website security pioneer, just filed to go public
Take-off: Southwest whipped up $99 flights to Hawaii in its push for a lucrative route while so many of its Boeing 737 Max planes remain grounded
Semi-corn: Nurx, the birth control delivery startup, closes in on a $300M valuation with its latest fundraise

Friday

Earnings from John Deere

Disclosure: Owners of this Snacks own shares of Tesla.

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Tangential remarks

Nicolai Tangen, the CEO who holds the purse strings of Norway’s $1.6 trillion sovereign wealth fund, thinks that his fellow Europeans don’t quite stack up to US employees when it comes to pure hustle, telling the Financial Times in a recent interview that there is a difference in “the general level of ambition” and that “the Americans just work harder”.

Tangen has clearly been putting his money — or more specifically Norway’s — where his mouth is: the sprawling Norwegian oil fund, now one of the largest investors on the planet, has been pumping more capital into its US holdings in the past decade, while decreasing its investment into European entities.

The troublesome news for our European readers? Tangen might be onto something. According to data from the OECD, American workers are putting in almost 60 hours a year more than the weighted average for OECD nations… a benchmark that workers from countries in the European Union are already ~180 hours shy of.

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Pop Quiz!

Sales of what are up 136% since 2019?

Don't be a sucka

$70B

Alphabet shares are soaring in the after-market session, with a initial jump of more than 10% implying a gain of upwards of about $200B in market value when the stock opens tomorrow morning.

Google’s parent company crushed earnings expectations, initiated a cash dividend for the first time, and authorized a fresh $70B in share repurchases for good measure. The market likes it very much.

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No, Apple hasn’t cut its Vision Pro production estimates in half

Quite a few news outlets are reporting that Apple thinks it’s only going to sell 400,000 to 450,000 Vision Pros in 2024, compared a “market consensus” of 700,000 to 800,000. They’re all citing a note from Apple analyst Ming-Chi Kuo.

Obviously there’s no question that Apple’s $3,500 face computer will have a limited audience and could be a huge flop, but this also doesn’t seem like accurate news.

The issue is that 1) this 400,000 number isn’t new. Back in July of 2023, the Financial Times reported that Apple planned to make fewer than 400,000 units in 2024, reducing its initial projections of 1M units, citing two people close to Apple and, the Chinese contract manufacturer assembling the device. 2) It's unclear who was estimating 700,000-800,000 Vision Pros in the first place, but it appears that it was Ming-Chi Kuo himself?