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Business & Professional Services
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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!