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Business & Professional Services
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DASH $175
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DoorDash is ramping up its grocery delivery business with Albertsons partnership
(21 Jun 2021) With over 450,000 merchants, 20 million consumer/customers, and one million dashers on its platform, DoorDash (DASH $175) is already the largest food delivery service in the United States—despite just going public late last year. How far the company has come in seven years, from back when it was known as Palo Alto Delivery, Inc. Now, the San Fran-based firm is entering the competitive grocery delivery business, inking a deal with grocer Albertsons (ACI $20) to offer delivery of the chain's goods on its marketplace app. DashPass customers will be able to order grocery and household items from nearly 2,000 Albertsons-owned stores, which include Safeway, Jewel-Osco, and Vons. For a monthly subscription fee of $9.99, members receive free deliveries and reduced fees from thousands of restaurants, grocery stores, and convenience stores, according to the DoorDash website. Over 40,000 grocery items will be available on the marketplace app. DoorDash has also recently entered into delivery agreements with PetSmart and Bed Bath & Beyond, in addition to making a major international move into Japan. In 2020, DASH generated revenues of $2.9 billion, an increase of 229% over 2019 revenues (which, themselves, were up 310% from the prior year). There are going to be a handful of big, long-term winners in this new niche industry. In addition to the obvious mega-cap players (Amazon, Walmart), we see DoorDash and Uber increasing their market share for years to come. Actually, it would be relatively safe to bet on any of these four names going forward, assuming the fit is right for the respective portfolio. |
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GoPuff
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Will GoPuff be the poster child for the coming post-pandemic market reality check?
(23 Mar 2021) For anyone not familiar with SoftBank, it is the Masayoshi Son-run business that tried to bring WeWork public with founder and walking nightmare Adam Neumann still at the helm (at least originally). For anyone not familiar with GoPuff, it is yet another delivery service which brings products from the store to your home. The latter is being financially backed, in good measure, by the former. Why, you might ask, does America need another delivery service with established competitors such as Amazon, DoorDash, Uber Eats, GrubHub, Walmart, Drizly, Instacart, and an army of grocery stores which are getting into the game? We wish we had the answer. As for their unique value proposition (UVP), the delivery service brings household items such as OTC medicines, snacks, and household essentials to your doorstep. In essence, you are saved that pesky trip to Walgreens. (Actually, don't some of these competitors already do that?) Forget the viability—or lack thereof—of the company's UVP; we are more concerned about the valuation. In October of 2020, the company raised funds which valued the enterprise at just under $4 billion. Now, fueled with a new round of funding, it is valued at just shy of $9 billion. Keep this in mind as well: GoPuff will probably go public this year, and we have all seen what happens to these novelty (our word) startups out of the gate—many see their shares double or even triple before the dust settles. So, we have a company that may be worth $4 billion (doubt it), it is now valued at $9 billion, and it may be at $20 billion after the IPO. Does that make sense? We love DoorDash, but how many DASH investors even realize that the firm, which has never turned a profit, has a $44 billion market cap as of this writing? There is a house of cards being built, and every house of cards eventually comes crashing down. Forget the hype being pushed by the old media or on social media with respect to these companies. Do the research, figure out whether they actually do have a UVP, take a look at the numbers, consider the management team in place, and make wise investment decisions based on the easily-accessible research available to virtually everyone. Maybe it is FOMO, or maybe we are simply going stir-crazy in our homes, but there is a whole lot of gambling going on within the markets right now. |
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KODK
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EMH debunked yet again with laughable spike in Kodak shares
(08 Dec 2020) Efficient market hypothesis (EMH): the theory that a stock is always fairly valued based on all the available information at the time, making it impossible to "beat the market" on a consistent basis since share prices only react to new information. What a load of bull. Shares of Eastman Kodak (KODK $13), the lovable yet archaic camera company which was founded in 1888, have fluctuated between $1.50 (23 Mar) and $60 (29 Jul) this year. On Monday, shares spiked 77% in one session, driving them all the way back up to $13.30. What led to this latest unreal jump? Exoneration from the SEC regarding accusations that the company leaked news about a potential $765 million loan by the government to help it—Kodak—begin making active pharmaceutical ingredients (APIs) for drugs—a job the US disgracefully outsourced to China years ago. So, leaked news of a $765 million loan turned a $96 million flounder into a $1.65 billion shark virtually overnight? Yep. Maybe it wasn't just the news that drove "investors" back into the shares; maybe it was the financials. Over the trailing twelve months (TTM), Kodak lost $623 million on $1.06 billion in sales. That seems almost difficult to accomplish. Yet another story reminiscent of the 1999/2000 time period: Throw good money into companies that will show losses as far as the eye can see. Some "investors" don't recall that period, but we do. There is a true dichotomy in the markets right now. We see a lot of great investment opportunities and a bright horizon for the year ahead. We also see a lot of companies with insane valuations thanks to dumb money chasing quick returns. Even more so than in 1999, many of the people pumping money into these companies couldn't explain what these firms do if their lives depended on it. That is certainly true with respect to Kodak, the camera company turned drug ingredient supplier. |
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PYPL
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In a nod to the current state of many Americans' fiscal condition, PayPal will give employees immediate access to pay
(17 Nov 2020) Recent studies show that nearly one-half of all working Americans are living paycheck to paycheck, meaning they would not have the liquid assets available to pay living expenses were their next paycheck not to come in. Even among households making more than $100,000 per year, the number is a staggering one-third. Against that backdrop, $227 billion financial services firm PayPal (PYPL $194) has announced that it will give its US-based employees access to their pay as soon as they earn it, rather than having to wait for their twice-monthly deposit. To make this happen, the company is teaming up with privately-held Even Responsible Finance, an on-demand pay platform. Members of PayPal's management team, led by CEO Dan Schulman, identified the problem when they set up an emergency relief fund for employees who found themselves in a cash crunch. The request for assistance was much greater than expected, leading to the current arrangement with Even. Users of the app are also able to move money into savings and access basic budgetary tools. PayPal has approximately 20,000 employees, with the vast majority based in the U.S. Expect more and more employers to begin offering such tools and services to their employees going forward. The historically-low rate of savings among a majority of Americans has been a chronic problem for the past two generations, and it must be addressed. |
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UBER
LYFT |
In blow to the California political apparatchik, voters side with Uber and Lyft
(04 Nov 2020) You live in California and you want a part-time gig to supplement your income (and pay your confiscatory tax rate), so you begin driving for Uber (UBER $39). Of course, you are the epitome of an independent contractor. Common sense to most of the world, but not to the activist state government of California. No, to those blowhards you are an employee of Uber, despite your pleas to remain a contract worker. Refusing to bow to the power-hungry, micromanaging politicians in charge, Uber and Lyft fought back. They organized Proposition 22 in the state, which would allow ride-sharing firms and other gig economy companies (like Doordash and Postmates) to continue listing these part-time workers as contractors. They also announced that, barring the passage of Prop 22, they were ready to leave the state entirely. It looks like that won't be necessary, as voters in the once-Golden State handed them a resounding victory—nearly 60% to 40%. Never count an activist, overbearing government out, however; we are certain they will come at these companies in another way. We are reminded of Ronald Reagan's great quip on an overbearing central authority: "Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it." On the morning after the victory, shares of Uber were trading up over 12% and Lyft shares were up 11%. Looks like a victory for shareholders as well. |
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PYPL
Bitcoin |
Bitcoin pops after PayPal announces it will allow customers to trade in cryptocurrencies
(22 Oct 2020) The value of Bitcoin "shares" surged to $13,000 following news that credit services provider PayPal (PYPL $213) will begin allowing its customers to use the digital currency on its platform. The firm said Bitcoins can be used for purchases with its 26 million merchants around the world, and the currency will soon be allowed on Venmo, now a PayPal company. That being said, the firm will not hold cryptos on its balance sheet; instead, it will partner with cryptocurrency services firm Paxos Trust Company to assist in completing the transactions. This means that merchants won't have to actually deal with the digital currency, as Paxos will serve as the intermediary. Nonetheless, considering PayPal has some 300 million customers around the globe, Bitcoin advocates are celebrating the move. Shares of the digital currency have been extremely volatile this year, falling from around $10,000 in February to $5,000 in March, then climbing back to $13,000 this past week. The high value mark of the currency was $20,000 back in 2017. Investing in Bitcoin has been—and will continue to be—a complete gamble. Keep in mind that this currency does not exist in "hard" form, it only exists virtually. Considering the high level of sophistication of hackers around the world, expect to hear more stories in the near future of accounts being drained of Bitcoin. As for PayPal, we like the firm but don't like the 100 multiple on the share price. |
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KODK
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The insane trading of Eastman Kodak shares should raise concern
(03 Aug 2020) Quick, what comes to mind when you hear the word Kodak (KODK $2-$18-$33)? Maybe an old camera you or your parents used to take on vacations in the 1970s? Or maybe that workhorse inkjet printer sitting in your home office? Perhaps even a classic Paul Simon song from 1973? Chances are, the name doesn't make you think of active pharmaceutical ingredients (APIs) for use in drugs. Nonetheless, that last category has been the catalyst for frenetic movement in the company's share price over the past two weeks. It began when the iconic camera maker landed a $765 million government loan under the new Defense Production Act—authorized by President Trump back in May—to help fix America's medical supply chain problem; specifically, our reliance upon communist China for about 85% of our drug ingredients. While the shift from photos and printers to drug production may seem like a radical departure for the 132-year-old company, the firm has a long history of working with chemicals and advanced materials. But the real story is the stock's crazy price movement. This company went from having a $95 million market cap in June to a $1.5 billion market cap at the end of July. Now wait a minute. Even if the government loan (which can be paid back over 25 years) were an outright gift, that would still just bring the market cap up to $860 million. Here's the magic formula that made KODK an overnight darling among Robinhood users: it was selling for under $10 per share, and there was a nice story to tell with the DPA loan. Bammo! Price goes from $2 to $33 to $18 all in the matter of ten trading days. Now the reality: This deal will help energize a company that was floundering badly, but it is not a magical panacea that will suddenly make it investment-worthy. |
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Uber
Lyft Airbnb CRM |
San Francisco getting hammered as job losses hit Silicon Valley
(07 May 2020) Last week ride-sharing service provider Lyft (LYFT $14-$33-$68) furloughed 17% of its workforce, or roughly 1,000 positions; this week, competitor Uber (UBER $14-$30-$47) announced that it would lay off 14% of its workers, or 3,700 full-time employees. Keep in mind that these are actual corporate positions—not the companies' contract drivers. Soon-to-be-IPO Airbnb just announced 1,900 layoffs, or 25% of its workforce. The company's CEO called it "the most harrowing crisis of our lifetime." What do these three nascent firms have in common? They are all glittering examples of San Francisco-based Silicon Valley startups. While it may seem as though many high-tech firms would be somewhat immune from a lockdown due to the online nature of their business models, we need to consider the customer base of these companies and how they are being effected. It doesn't matter much if the products and services of a Salesforce (CRM) are completely digital, if their customers are bleeding cash, the cuts they are forced to make will hit third-party vendors like Salesforce. Then there is the high cost of living in the Bay area. It was tough enough for these workers to make ends meet before a pandemic came along; now, for many, it will become impossible. There will be some wonderfully-undervalued technology names to select from over the coming months, but investors need to dive deeper than the balance sheet and consider the financial state of the group actually responsible for the revenues—the customers. Those wacky p/e ratios (CRM's is 1,091) may no longer be justifiable. |
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PYPL
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What is Honey Science and why is PayPal willing to pay $4 billion to get its hands on it? (22 Nov 2019) With its 267 million active users—22 million of which are merchant accounts, digital and mobile payments processor PayPal (PYPL $77-$102-$121) is the big dog with respect to secure, online transactions. Honey Science is a digital company which offers a free web browser extension to online shoppers which automatically seeks and applies coupons to whatever items a consumer happens to be looking for on the internet. For example, searching for some Levi's 502 slim fit jeans? Just search a site and add the product to the site's respective shopping cart, go to checkout, and Honey will apply all of the possible discounts, often dramatically lowering the price you pay. We tried it—it is pretty cool. So cool, in fact, that $120 billion PayPal is willing to pay $4 billion to acquire the company. For PayPal, this is part of a trend: buy new tools to keep users happy and figure out how to monetize these tools within the company's ecosystem. You have probably heard the term "fintech" used recently. Understand this term, because there is a lot of money to be made with the synergies generated between technology and financial services. Working in the industry, we see it on a daily basis, and the momentum is growing. Brilliant move and smart overall strategy by PayPal, a company which we agree is undervalued. p.s. Don't tell millennials but the company also owns their darling online payment service, Venmo.
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BCO
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Brink's on two-day roller coaster after gold heist, analyst upgrade
(11 Jan 2018) What a couple of days it has been for mid-cap growth company Brink's (BCO $41-$87-$87). On Thursday the business services and money processing firm said it would take an $11 million pre-tax hit due to an international gold shipment heist last month. The company also gave Q4 guidance for operating profit of $280 million or so, which is 30% higher than the same quarter last year, but near the low end of expectations. Today the company was upgraded to a "buy" rating by analyst Sidoti & Company, causing shares to surge 11%. The closing price of $86.90 is just 40 cents shy of an all-time high for BCO shares. |
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MGI
EEFT Ant |
US quashes China’s Ant Financial’s bid to takeover Dallas-based MoneyGram
(03 Jan 2018) And the saga continues. Nearly a year ago, we reported on the duel between China’s Ant Financial and Kansas-based Euronet (EEFT $71-$85-$101) for control over money transfer services company MoneyGram International (MGI $11-$12-$18). Ultimately, despite being a Chinese firm in a more protectionist environment in the US, we figured that the $75 billion Ant would get its way. Not so fast. The Committee on Foreign Investment in the US (CFIUS) just torpedoed the deal, sending MGI’s share price down to $12.40. For those who doubted the president’s US-centric view, the recent Samsung ruling and this decision should make it clear that he meant what he said. Because of Jack Ma’s close relationship with President Trump (Ma controls Ant, the former Alibaba subsidiary), many believed the deal would ultimately be approved. There is often a fine line between protectionism and protecting US interests, however, and we applaud this decision. In its denial, CFIUS cited US national security concerns. Considering the amount of highly-sensitive personal data controlled by MoneyGram, and China’s overt and covert efforts to hack every US system it can, why shouldn’t the deal have been shot down? After all, $44.5 billion, US-based Euronet initially outbid Ant for control of the company (though Ant subsequently offered $1.2 billion, or $18 per share, for MGI). So, now that their main competitor is gone, what will be Euronet’s next move? The company said it still sees a “compelling commercial logic” to the deal, but added that there is no guarantee any new offer will be made. From an investment standpoint, this is a tricky issue. With MGI down near its 52-week low, it would probably be a great investment if a new deal is made. If EEFT simply walks away, however, MoneyGram’s stock will continue to languish. Investors tend to believe, based on the share price of Euronet, that the two US companies will eventually merge. EEFT was up about 4% immediately following the CFIUS decision. |
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EFX
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Equifax executives sold stock days after breach discovered
(08 Sep 2017) This one goes in the “how stupid do you think we are?” file. Credit-reporting firm Equifax (EFX $111-$124-$147) claims that three company executives, including the CFO, didn’t know about the recently-discovered massive data breach—potentially affecting 143 million Americans—when they sold a combined $1.8 million in company stock. OK, let’s piece this together. The company uncovers the breach on 29 July. During the first two days of August, the CFO sells stock. Other than the CEO, wouldn’t the CFO be the first to know about the massive security incident? Is their story possible? Maybe. Highly suspect? Absolutely. |
(18 Apr 2017) China's Ant Financial raises bid for MoneyGram. Last month we reported that Leawood, Kansas-based Euronet Worldwide (EEFT $65-$85-$86) had outbid China's Ant Financial in the takeover battle for Dallas-based MoneyGram International (MGI $6-$18-$18). Well, Ant is back. The former subsidiary of Alibaba has raised its own bid by 36%, to $1.2 billion ($18/share) to fend off Euronet. MoneyGram's board has backed the new bid. If you haven't heard of Ant Financial before, you soon will. The company, which is still controlled by Alibaba's Jack Ma, is said to be worth an incredible $75 billion, and is expected to be taken public soon. Ant going after MoneyGram would be like Jeff Bezos and Amazon going after a small-cap cloud technology company—if they want it, they will get it. For its part, Euronet is still throwing out concerns that the deal won't pass US regulatory approval.
(15 Mar 2017) Euronet makes unsolicited offer to buy MoneyGram. Leawood, Kansas-based Euronet Worldwide (EEFT $65-$84-$85), a major player in the payment and transaction processing business (think EFTs and ATMs), has made an unsolicited bid to buy Dallas-based MoneyGram International (MGI $6-$16-$16) for $955 million. Here's where the story gets really interesting: Back in January, MoneyGram agreed to be purchased by an affiliate of Chinese internet giant Alibaba (BABA $72-$104-$110), Ant Financial, for $880 million. Ant Financial happens to be China's biggest online payments processor, and wants a foothold in America. Euronet made the argument to MoneyGram that the original deal may well get shot down with the current "buy American" atmosphere in Washington. We agree. Take curtain number 2, MoneyGram!