E-Commerce
The following headlines have been reprinted from The Penn Wealth Report and are protected under copyright. Members can access the full stories by selecting the respective issue link. Once logged in, you will have access to all subsequent articles.
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AMZN $131
18 Oct 2023 |
Amazon is revamping its fulfillment centers with AI-powered robots
According to the Wall Street Journal, $1.4 trillion online retailer Amazon (AMZN $131) is about to undertake a massive overhaul of its fulfillment centers to increase efficiency. Under the project name Sequoia, the program will deploy artificial intelligence and robotic arms to increase both speed and safety at the warehouses. Sequoia will allow the company to place items on its website more quickly, reduce the time it takes to fulfill an order by 25%, and store inventory up to 75% faster. The project isn’t piecemeal: it is part of a major push to fully integrate advanced robotics into the workflow process, transforming the way workers and machines interact. The goal is to eliminate as many arduous and mundane tasks for humans as possible, while lowering operating costs and improving margins. The strategy will initially be centered around dozens of new same-day delivery sites but will methodically expand throughout the company’s vast warehouse system. Last year, Amazon initiated a $1 billion fund to foster innovation in the logistics and supply chain process, with privately-held Agility Robotics being among the first recipients. Agility believes it will usher in “the next wave of robotic automation.” Additionally, Amazon acquired robotics firm Kiva Systems Inc., maker of the little orange robot workers zipping around fulfillment centers, about a decade ago for $775 million. The deal was the second-largest in the firm’s history, behind the $900 million purchase of Zappos.com in 2009. The message is clear: AI-powered automation is a cornerstone of Amazon’s business strategy going forward, and it intends to remain the undisputed leader in the efficient delivery of goods to the American consumer. Amazon is a member of the Penn Global Leaders Club and one of the “Ten Stocks to Buy for 2023,” as outlined in our 2023 Market Outlook report. |
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OSTK $31
BBBY $0.31 25 Jul 2023 |
Overstock.com will buy the intellectual property of Bed Bath & Beyond
It turns out Bed Bath & Beyond (BBBY $0.31) is not going away after all. Well, the 260 (down from 1,500 five years ago) remaining stores may be, but the name will live on. It seems that Overstock.com (OSTK $31) has been trying to break the stigma for years that it is nothing but a liquidator of goods. Considering that concept is literally in the name of the firm, the $1.4 billion online retailer has agreed to purchase BBBY’s intellectual property, customer lists, and website domain for $21.5 million in cash. Honestly, that seems like a real bargain if they can actually pull it off. Investors are applauding the deal, pulling the shares up from just above $17 in June to just under $31 as we write this. In Canada, online shoppers who visit bedbathandbeyond.ca website will now be taken to the Overstock site, with the US rollout expected by the end of summer. The fit just seems right—the two companies’ sites look almost identical. Despite the low cost of acquisition and the enormous name recognition of the acquired, one lingering question remains: Without a physical presence, what percentage of Bed Bath & Beyond bricks-and-mortar shoppers—most of whom armed with 20% coupons in hand as they lingered the aisles—will take to the online store? After all, if you can’t walk around and find in-store deals, isn’t it easier just to visit Amazon.com? Then again, couldn’t that have been said of Overstock.com before this deal? For $21.5 million, Overstock made a smart move. For a fully online company, we could imagine them getting lost in ubiquity before long, looking a lot like most other home furnishings retailers. At least the new name will make them stand out a bit more. Another plus: the company’s balance sheet is very strong, with virtually no debt on the books. Imagine the overhead of those Bed Bath and Beyond behemoths, and it is easy to understand why they were awash in debt. Is OSTK (not sure whether they will change that ticker) worthy of an investment? With no dividend and a fair market value—in our opinion—of $35 per share, they seem close to fairly valued. Too bad we can’t use a 20% coupon on the stock price. |
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SHOP $32
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Shopify drops another 14% after booting one-tenth of its workforce out the door
(27 Jul 2022) At one time we were intrigued with Canadian e-commerce platform Shopify (SHOP $32); now, we find ourselves repelled by the firm. Back in spring, we wrote of two big decisions by the board: the initiation of a ten-for-one stock split, and the creation of a new share class (the Founder share) which would increase CEO Tobi Lutke’s voting power to 40%. Why not just decree him ruler for life? That was an outrageous move, made even more distasteful by the company’s decision on Tuesday to boot 10% of the workforce out the door “by the end of the day.” Lutke admitted to misreading the strength of online shopping post pandemic, but words are cheap. The proper action would have been to join the 10% of fired workers and leave the building with his little brown shipping box. Since the company’s ten-for-one stock split muddied the waters with respect to just how much the shares have fallen, consider this: In November of 2021 SHOP had a market cap of $212 billion; it is now worth $40 billion, or 81% smaller than it was nine months ago. We often talk about how the Nasdaq fell 78% between 2000 and 2002. Astonishingly, we now have a growing list of companies on that exchange which have dropped further than that in under a year. Certainly, some will come roaring back, but others will flounder for years. We can’t say in which camp Shopify will find itself, but we can say we wouldn’t invest in a firm where one person controls 40% of the voting rights. |
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SHOP $601
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We are fine with Shopify's ten-for-one stock split decision; it is the other planned move which has us concerned
(11 Apr 2022) Ten-for-one stock splits have been the financial activity du jour for tech companies recently, with the likes of Amazon, Google, and Tesla undertaking such moves. E-commerce platform Shopify (SHOP $601) just joined the pack. We began seriously looking at this e-commerce platform, which is a hugely popular choice for small- and medium-sized businesses wishing to expand their digital footprint, after its share price plunged some 70% in the four-month period between last November and this past March. Around $600 per share, it seems undervalued. The company just announced a move we fully support: it will undergo a ten-for-one stock split, which would bring the current share price to around $60. At first, share futures rallied on the news; but then, another announcement was made which gave investors pause for concern. A new share class would be created, the Founder share, which would be given to founder and CEO Tobi Lutke in order to increase his voting power in excess of 40%. We have made clear our disdain for dual share class structures (or more than dual in many cases), which is little short of financial engineering designed to give elite stakeholders power over us ordinary shlub owners, the hoi polloi who dare to expect some modicum of power simply because we put our hard-earned money into an ownership stake. Granted, Lutke has been a fine—even dynamic—leader for the firm, but he is well compensated for his skills through a generous, $15 million per year pay structure and a 6.27% ownership stake. If he wants so much power over the firm he began, shouldn't he take it private? Shopify really is an excellent platform for small- and mid-sized businesses, but the competition is too keen for the company to turn off would-be investors with this scheme. We put together the accompanying graph in February, asking if shares were undervalued at $657. If they were then, they certainly are now, with shares floating around the $600 level. Still, we are having trouble accepting this Founder share class maneuver. For investors who have a high risk appetite and are comfortable with the move, we could easily make the argument that the shares are worth between $750 and $1,000. We just can't justify pulling the trigger right now. |
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AMZN $2,960
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Amazon will pursue a 20-for-1 stock split as well as a share buyback program—investors applaud the moves
(10 Mar 2022) When I tell people that stock splits are pure financial engineering, and that not one dollar of value is created, I typically hear something like, "But at least the shares will be cheaper for me to buy!" As Charlie Brown says, "Good grief." That being said, I finally heard it put in the perfect way, courtesy of Barron's: "(A stock split) is no different than swapping your $20 bill for 20 singles. Your wallet might be a little fatter, but you aren't any richer." Precisely! Nonetheless, in the case of Amazon (AMZN $2,960), we do support the 20-for-1 stock split they just announced. Why fight the psychology of a $150 share price sounding more appealing to a stock buyer than a $3,000 share price, despite the fact that traders can now buy fractional shares? Another de minimis act was the company's announcement of a $10 billion stock repurchase plan. To you or I, $10B sounds like a lofty sum; to a $1.5 trillion company, it is pocket change. Nonetheless, investors cheered the two moves by pushing Amazon shares up over 6% after the news was released. One tangible benefit the company might receive due to its actions: it is much more likely to be included in the Dow Jones Industrial Average post-split. The DJIA is a price-weighted index, meaning the higher the share price of a member the more its price swings can affect the Dow's swings—not a good thing. Alphabet (GOOG $2,657) announced the exact same stock split plans last month, so the interesting question is which company will get the first invite. Our money is on Google, though we imagine both will eventually earn their way into the rather archaic index. We said what we thought of Google last month, so what about Amazon shares? They are a bargain, and probably worth in the $4,000 range ($200 post split). Love 'em or hate 'em, this company is only going to get stronger, and the recent tech wreck has the shares trading down about 21% from their recent highs—historically a good sign that it is time to take a position. Amazon is one of the 40 members of the Penn Global Leaders Club. |
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SHOP $657
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Another e-commerce company plummets on earnings, sentiment
(21 Feb 2022) While we have never owned e-commerce platform Shopify (SHOP $657), it was certainly one of the investor darlings during the pandemic. Furthermore, we love the story. Consider the company an Amazon for the rest of us. It provides everything a small- or mid-sized business needs to set up shop on the Internet, make sales, ship goods (fast), and help with bookkeeping and marketing. All for a quite reasonable price, we might add. If that wasn't enough of a sales pitch, consider this: you can now pick up shares at a 63% discount to their 52-week high of $1,763. But should you? This is yet another case of a company reporting strong earnings, but issuing guidance which spooked the market. Against expectations for $1.34 billion in sales for the quarter, the company reported revenue of $1.38 billion. Earnings also beat, with the company netting a profit of $1.36 per share (yes, they are actually operating in the black). For the full year, Shopify generated $4.6 billion in revenue, improving on 2020's sales by 57%. Impressive. Two concerns weighed on investor sentiment, however. First, can the company possibly keep up the impressive rate of growth it enjoyed during the pandemic? Secondly, investors are concerned about how much it is going to cost to build the company's massive American distribution system, known as the Shopify Fulfillment Network. The ultimate goal is to deliver good from its merchants to their respective customers within two days, competing head-to-head with Amazon Prime. The company is expected to spend around $1 billion over the next two years to build out key warehouse hubs in the United States (Shopify is a Canadian company). The key question is whether or not management can effectively deploy the capital needed to complete the project. Dour investors voted with their capital this past week, sending the shares reeling. Again, we don't currently own the company right now. That being said, we do believe in the management team, and we could see the shares doubling in price if 2022 shapes up like we expect it to. The financials look exceptional, and the company is sitting on a war chest of nearly $8 billion. A conservative fair value of $1,000 per share seems appropriate. |
Netflix is teaming up with Walmart to create a dedicated digital storefront on the retailing giant's website
As Netflix's (NFLX $624) subscriber growth cools, it continues to search for new revenue streams in an effort to become less reliant on the one metric analysts focus on each quarter. To that end, the company has announced a new deal with Walmart (WMT $141) which will result in a dedicated 'Netflix Hub' on the giant retailer's website. The shop will include themed merchandise from its wildly-successful "Squid Game" as well as other recent hits on the streaming service, such as "Stranger Things." Right now, Netflix receives the vast majority of its revenue from the $13.99 paid monthly (more or less, depending on subscription plan) by its 200 million subscribers around the world. The growth of that subscriber base has been leveling out, however, due to saturation and a host of new entrants in the space, from Disney+ to Amazon Prime Video. While CEO Reed Hastings said he doesn't expect the new venture to have a major impact on the company's top line, he believes the real value comes in building user engagement with and excitement for the provider's Netflix Originals, for which it currently spends over $5 billion per year developing. Netflix licenses its intellectual property to select manufacturers in exchange for a cut of the profit. As for Walmart, this deal is part of an overall strategy to increase its online Walmart Marketplace presence by teaming up with brands held in high esteem by consumers. Like the recent deal with Gap, the company hopes to broaden its customer base by attracting a new generation of consumers; primarily younger customers who might have avoided the company's site in the past.
Based on valuations and our current tilt toward more conservative names, we believe Walmart shares look more attractive right now than those of its new marketing partner, Netflix. When another downturn hits the market, we could see NFLX shares falling back into the $400s—at which time they would be worthy of another look.
As Netflix's (NFLX $624) subscriber growth cools, it continues to search for new revenue streams in an effort to become less reliant on the one metric analysts focus on each quarter. To that end, the company has announced a new deal with Walmart (WMT $141) which will result in a dedicated 'Netflix Hub' on the giant retailer's website. The shop will include themed merchandise from its wildly-successful "Squid Game" as well as other recent hits on the streaming service, such as "Stranger Things." Right now, Netflix receives the vast majority of its revenue from the $13.99 paid monthly (more or less, depending on subscription plan) by its 200 million subscribers around the world. The growth of that subscriber base has been leveling out, however, due to saturation and a host of new entrants in the space, from Disney+ to Amazon Prime Video. While CEO Reed Hastings said he doesn't expect the new venture to have a major impact on the company's top line, he believes the real value comes in building user engagement with and excitement for the provider's Netflix Originals, for which it currently spends over $5 billion per year developing. Netflix licenses its intellectual property to select manufacturers in exchange for a cut of the profit. As for Walmart, this deal is part of an overall strategy to increase its online Walmart Marketplace presence by teaming up with brands held in high esteem by consumers. Like the recent deal with Gap, the company hopes to broaden its customer base by attracting a new generation of consumers; primarily younger customers who might have avoided the company's site in the past.
Based on valuations and our current tilt toward more conservative names, we believe Walmart shares look more attractive right now than those of its new marketing partner, Netflix. When another downturn hits the market, we could see NFLX shares falling back into the $400s—at which time they would be worthy of another look.
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AMZN
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Amazon set to test furniture and appliance assembly service
(19 Apr 2021) Amazon (AMZN $3,411) appears poised to encroach on more turf, and this time the likes of Home Depot, Lowe's, and Wayfair could be affected. The $1.7 trillion Internet retailer will begin testing a product assembly service in several markets this summer, with drivers delivering, unpacking, and assembling everything from beds to treadmills, taking away all of the packing material when done. Customers will even have the option of sending the items back on the spot if dissatisfied with a product once assembled. While the furniture assembly service would most affect the likes of a Wayfair (W $324), moving into the setup of appliances such as washing machines, dishwashers, and ceiling fans would impact the likes of Home Depot (HD $328) and Lowe's (LOW $206). Taking it a step further, ordering big-screen televisions through Amazon and having the price include mounting and setup would affect electronics retailers such as Best Buy (BBY $120). Behind the scenes, however, Amazon is already facing pushback from drivers and delivery workers who fear getting bogged down by the inevitable in-home challenges. Concerns include having customers hover over them during the assembly process, and the company not taking into account any delays caused by unique in-home circumstances such as space constraints. Our first inclination was to disregard any employee grumblings—Amazon tends to get its way in such matters. However, there are so many unique challenges bound to arise for a non-specialty company such as Amazon trying to train its delivery specialists on the assembly of a multitude of products that the success of this program is far from given. We will keep an eye out for the anecdotal—yet highly entertaining—stories which are sure to make their rounds on social media. |
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AMZN
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Amazon grows its fleet with purchase of eleven 767-class aircraft
(07 Jan 2021) Business is good for $1.6 trillion Internet retail firm Amazon (AMZN $3,166). So good, in fact, that the company is doing something it hasn't done before: buying cargo aircraft. While the firm has a fleet of leased jets, the purchase of eleven Boeing 767-300s from Delta (DAL) and WestJet Airlines gives an indication of Amazon's booming business, and a further indication that it will continue to reduce its reliance on United Parcel Service (UPS $161) for deliveries in favor of its own integrated fleet. Recall that back in 2019 FedEx (FDX $251) refused to renew its contract with Amazon due to draconian demands and thinning margins. The company's delivery operation now includes tens of thousands of cargo vans, and management has expressed a desire to control 200 aircraft in the coming years. By comparison, UPS operates roughly 500 aircraft, and FedEx roughly 700. Remember when so many industry analysts were poking fun at an investment in Amazon due to the company's lack of profit? That wasn't very long ago. Granted, shares still hold a rich multiple of 95, but we believe that is justified. AMZN is one of the forty holdings in the Penn Global Leaders Club. |
Americans were doing a lot more than eating on Thanksgiving, according to Adobe
(27 Nov 2020) According to Adobe Analytics, Americans spent a record $5.1 billion shopping online this Thanksgiving Day, a 21.4% increase from last year's $4.2 billion spent. With consumers understandably avoiding the malls this year, they turned to online shopping via their smartphones—the devices accounted for nearly one half of all purchases made. The marketing analytics arm of Adobe is also projecting a record-shattering $10.3 billion in online sales for Black Friday, and a staggering $189 billion for the entire holiday shopping season. Some of the top-selling items so far? Family games (especially chess boards), video games (especially Just Dance 2021), and electronic learning toys from vTech. Top online destinations? Amazon, Walmart, and Target. It is hard to fathom the demand destruction which would have taken place this Christmas shopping season were it not for e-commerce. Companies that were embracing the trend before the health crisis, such as Walmart and Target, have been richly rewarded for their foresight and their tenacity in taking on Amazon. Retailers who failed to recognize this inevitable trend, such as now-defunct Sears, have paid dearly.
(27 Nov 2020) According to Adobe Analytics, Americans spent a record $5.1 billion shopping online this Thanksgiving Day, a 21.4% increase from last year's $4.2 billion spent. With consumers understandably avoiding the malls this year, they turned to online shopping via their smartphones—the devices accounted for nearly one half of all purchases made. The marketing analytics arm of Adobe is also projecting a record-shattering $10.3 billion in online sales for Black Friday, and a staggering $189 billion for the entire holiday shopping season. Some of the top-selling items so far? Family games (especially chess boards), video games (especially Just Dance 2021), and electronic learning toys from vTech. Top online destinations? Amazon, Walmart, and Target. It is hard to fathom the demand destruction which would have taken place this Christmas shopping season were it not for e-commerce. Companies that were embracing the trend before the health crisis, such as Walmart and Target, have been richly rewarded for their foresight and their tenacity in taking on Amazon. Retailers who failed to recognize this inevitable trend, such as now-defunct Sears, have paid dearly.
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AMZN
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Amazon threatens to stop French deliveries after silly court order
(17 Apr 2020) As with many companies in this day-and-age of political correctness run amok, we have a love-hate relationship with Amazon (AMZN $1,626-$2,283-$2,292). Leave it up to the French to put us clearly on the side of the company. This week, a French court gave the $1.1 trillion company twenty-four hours to begin selling only essential goods to citizens. To the average thinking person, the logistics of this seems unfathomable. To a bunch of arrogant French judges sitting on their thrones, this is simply a decree which must be followed. This outrageously stupid ruling gives us an idea as to why Britain voted to leave the European Union, which is essentially led by a group of French and German autocrats. As for Amazon, the company is threatening to halt all activity at its French warehouses until the ruling is overturned. In the meantime, activity will cease between the 16th and 20th (at least) of April so that Amazon can assess its health and safety measures at the locations. |
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AMZN
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Amazon raises overtime pay to warehouse workers, increases minimum wage. (23 Mar 2020) It was around 06 March when shares of online retail giant Amazon (AMZN $1,626-$1,830-$2,186) detached from the overall market and began to stabilize. The reason is obvious: Amazon has been one of the top players in helping to keep America running during the downturn, which has meant unprecedented use of the company's services over the past few weeks. With that in mind, Amazon has announced that hourly workers at its US warehouses will receive double-pay for all overtime hours incurred between 15 March and 09 May. Additionally, the $931 billion firm said it would hike its minimum wage from $15 to $17 per hour and hire 100,000 new warehouse and delivery workers to handle the flood of new orders coming in. Since 06 March, shares of AMZN are down roughly 2% while its index, the Nasdaq, has dropped 20%. Despite its 81 P/E ratio, $1,830 will end up being a great entry point for AMZN shares. The challenge right now is finding any willing buyers.
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FVRR
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Fiverr International pops over 7% on FY2020 forecast, smaller losses than expected. (19 Feb 2020) Fiverr International LTD (FVRR $17-$30-$44) is to the digital services world what Amazon (AMZN) is to the physical products world. The company is a digital marketplace, acting as the conduit between professionals selling their services and customers who are looking for those services. Shares of FVRR, which just began trading last summer, jumped over 7% after the company reported guidance in excess of what the Street was looking for, and after announcing quarterly losses which were smaller than expected. Fiverr said it expects revenues of around $140 million in FY2020—versus the average analyst forecast of $135 million—and reported losses of $0.23 per share versus an $0.84 per share loss in the same quarter last year. Quarterly revenues rose from $20 million a year ago to $30 million this past quarter. We have used Fiverr and thoroughly enjoyed the experience. An excellent array of services at good prices and with plenty of competition to choose from within the platform. Since going public, quarterly YoY revenue growth has been: 42%, 41%, and 42%, chronologically. Not bad. Definitely a higher-risk proposition, but worth a look for the higher-beta portion of a portfolio.
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EBAY
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Why would the parent company of the New York Stock Exchange want to buy Internet retailer eBay? (05 Feb 2020) Intercontinental Exchange (ICE $72-$96-$102), owner of the New York Stock Exchange, has made a seemingly bizarre offer: it wants to buy global online marketplace eBay (EBAY $34-$37-$42) in a deal that would ultimately be valued well above the company's $30 billion market cap. While there is no indication that eBay has yet to engage with the exchange, news of the offer sent its shares up by over 8%. If you are scratching your head over this one, you are not alone: ICE closed the day down over 7% on the news. Technically, both companies are "exchanges" in the broad sense, and it would even be fair to call both auction houses—pitting buyer versus seller and keeping a cut of the spread. but it is hard to imagine how eBay fits in the exchange's strategic plan. Management at the Atlanta-based firm didn't have a lot to say, other than to confirm the offer and that the company has a "track record of creating shareholder value, both through organic growth and acquisitions...." As for creating shareholder value, it is certainly fair to say that eBay is ripe for a new strategy, after losing immense ground to the likes of Amazon (AMZN). Until the spring of 2007, in fact, eBay was the larger online retailer of the two. We hope the deal goes through—what do eBay shareholders have to lose? If a deal happens, it will be interesting to see how ICE's application of new technologies work in revamping one of the first online marketplaces. It may become a template for other companies—especially in the fintech arena—to emulate.
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GRUB
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Grubhub says it's not for sale, but investors are betting on an acquisition. (17 Jan 2020) Just three months ago, in October of 2019, we reported on food delivery service Grubhub's (GRUB $32-$56-$88) 43% share price decline in just one session. That massive drop was due to a pretty lousy Q3 earnings report. Now, three months later, GRUB shares have climbed back out of that hole, regaining all lost ground. It isn't that the financials are looking better, it is simply the fact that investors are betting big on a larger player swooping in to acquire the $5 billion company. With competition in the food delivery space increasing almost monthly, and with well-known rivals such as Uber Eats, DoorDash, and Postmates, the arguable pioneer in the industry needs to do something. DoorDash, in fact, just supplanted GRUB as the number one delivery service, with a market share of 32%. What company might acquire Grubhub? The most fascinating name we've heard circulated is Amazon (AMZN), which abandoned its own Amazon Restaurants delivery service last year. The company which is now delivering 3.5 billion of its own packages per year apparently wants back in on the food delivery game. It took some real fortitude to buy GRUB shares at or near their low of $32.11 back in late October, but those who did buy in have been rewarded with a 75% run since. Hoping that a buyer comes along soon, however, is a dangerous game to play. If one doesn't manifest, expect the shares to plummet back down.
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GRUB
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Food delivery service GrubHub just plummeted 43% in one trading day. (30 Oct 2019) Talk about a great business idea...that is incredibly easy to replicate. Online takeout food platform GrubHub (GRUB $33-$33-$98) arguably brought food delivery to the masses, allowing consumers to order from thousands of restaurants instead of just one. With over 50,000 restaurant partners and 20 million active users, the company makes money from both ends: it charges the establishments a commission on each order, and it charges users a delivery fee. Brilliant idea. So brilliant, in fact, that other players began flooding into the space. Uber Eats, DoorDash, Postmates, and Delivery.com are just a few of the competitors GRUB must now contend with. And all of this competition finally caught the eye of investors, with the help of a bizarre letter by CEO Matt Maloney which accompanied the Q3 earnings report. In the letter, Maloney decried the fact that "...online diners are becoming more promiscuous." Huh? Odd choice of words, but he apparently meant that there is no brand loyalty—users will go to whichever platform they feel like at the time. This commentary by management, combined with a squishy quarter, drove the stock down 43% by the close of trading. But forget the drop from $57 to $31, the shares were actually sitting at $146.11 just over one year ago. The company's quarterly YoY revenue growth is impressive, and it actually turns a profit year over year, but investors have suddenly become very skeptical that the trend can continue. A slew of downgrades came flooding in after the earnings report and the accompanying letter to shareholders. Were an investor to simply focus on a number of GRUB's financial metrics, a buy-in at $31 might seem like a tempting offer. We agree with the bears in this case, however, and are betting on the continued "promiscuity" of consumers. We wouldn't touch the company.
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PETM
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Online pet pharmacy PetMed Express rockets up 38% in intraday trading, so we sold our position. (21 Oct 2019) As of early Monday afternoon, shares of PetMed Express (PETS $15-$27-$33) were trading up 37.71% after the $540 million small-cap value company reported fiscal second-quarter earnings. That is what makes the earnings season so thrilling—there are always some major surprises from unexpected places. It wasn't that the quarter was lights-out for the Delray Beach, Florida company, with its 199 employees; it was simply that the numbers weren't anywhere near as bad as expected. Sales actually declined 2% for the quarter (YoY), to $69.9 million, but that beat estimates for $69.7 million. Net income fell from $0.52 per share in Q2 of 2018 to $0.33 this year, but that beat street estimates for $0.26 per share. "Not as bad as feared" earnings reports make us nervous, so we took the 38% spike as an opportunity to unload the shares and grab our short-term profit. Soon after we purchased PETM in the Penn Intrepid Trading Platform, the shares took a big hit; based on our fair value estimate, however, we held off on putting a stop-loss on the stock. In this case it paid off, but that is not always the way it works out. Unless an investor has the ability to diligently watch "trading stocks" (as opposed to long-term investments), there should be some protection on these holdings.
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CHWY
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The big winner in the Chewy IPO: Petsmart; the big loser: investors. (14 Jun 2019) By the time an average, ordinary investor (i.e. not a fat-cat NY client of a Morgan Stanley or JP Morgan) could buy shares of the latest bloated IPO, Chewy Inc. (CHWY), it was going for $48 per share. That gives the online pet products company a valuation of $14 billion. Consider this: our favorite pet food company, Blue Buffalo, was acquired by General Mills (GIS) last year for $8 billion. Petsmart itself, which was the sole owner of Chewy before it went public, was sold to a private equity firm in 2014 for just $8.7 billion. Don't get us wrong, Chewy has a great, customer-centric model, and its prices are in line with e-Commerce giant Amazon (AMZN), but it is massively overvalued. We were in the business of managing clients' money when Pets.com went public in February of 2000, and we remember the frenzy surrounding that IPO. We also remember the Blue Apron (APRN) IPO. What is the competitive advantage for Chewy? How high are the barriers to entry for competitors in the space? When we ask ourselves these questions, we don't like the answer. And the nail in the coffin is this: CHWY has a dual-class structure (a financially-engineered creature we revile) which gives Petsmart (and its private equity investors) majority control over the company. After the IPO, we went in and registered our dogs on chewy.com, and we may even buy some dog food from the site. Even if we end up loving the company and its exemplary customer service, that doesn't mean we can't loathe the company from an investment standpoint. We wouldn't touch CHWY above $9 per share, which is where it should have been priced. Even then, we probably still wouldn't touch it. And we are not afraid of sky-high valuations, as evidenced by our initial investment in Beyond Meat (BYND) at $53.60, or our probable pick up of IPO Fiverr (FVRR $36) soon.
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AMZN
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Amazon is bringing free one-day shipping to its Prime customers. (26 Apr 2019) A slew of analysts raised their price targets on $945 billion Amazon (AMZN $1,307-$1,920-$2,051) after the company reported stellar first-quarter numbers. While top-line revenues grew 17%, to an enormous $60 billion for the quarter, what really impressed analysts was the company's margin expansion. Let these numbers sink in: In the first quarter of 2018, Amazon had a net profit of $1.6 billion, or $3.27 per share; in the first quarter of 2019, the company had a profit of $3.6 billion, or $7.09 per share. That is a 125% gain in pure profits, which is simply a staggering statistic. What is the company going to do with all that cash? For one thing, they spent $800 million in Q1 preparing for the move from free two-day shipping for Prime members to free one-day shipping. For years, the company has claimed its goal is same-day shipping for those willing to shell out the annual Prime fee, and they are certainly headed in that direction. This should send shudders through the bones of brick-and-mortar retailers—even those who have been putting together their own omnichannel programs. Amazon appears to be simply unstoppable, and the company has forced efficiencies in competitors which never would have happened otherwise. We see the e-commerce giant only getting stronger.
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AMZN
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The best possible outcome for Amazon: Bezos's amicable divorce. (04 Apr 2019) Considering the fact that Jeff Bezos's now-ex-wife MacKenzie is entitled to half of the two's combined assets, an ugly divorce could have spelled trouble for Amazon (AMZN $1,307-$1,819-$2,051). That is because the company's founder is also the largest owner of its stock, controlling 16% of the outstanding shares, along with their voting rights. On Thursday, however, MacKenzie tweeted that the divorce process has been finalized, and that she has agreed to give the ex her entire interest in rocket company Blue Origin and The Washington Post, and 75% of their joint AMZN shares, or 12%. While she will still own the remaining 4%, she has also given Bezos voting control over those shares. That really is the best possible outcome, and a far cry from the infamous Steve Wynn (WYNN) divorce. The 4% of shares MacKenzie kept, by the way, are worth $35.6 billion, making her somewhere around the third richest woman in the world; following Francoise Bettencourt Meyers (L'Oreal) and Alice Walton (you can guess), and ahead of Jacqueline Mars (you can guess). As for Bezos, he will remain the wealthiest person in the world, worth a figure somewhere north of $100 billion when the dust settles. Amazon is position #40 in the forty stocks of the Penn Global Leaders Club.
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STMP
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Stamps.com loses half of its market value in one session. (26 Feb 2019) It always seemed like an odd business model to us: in a world going away from physical mail, sell (ultra-low-margin) postage stamps online. Nonetheless, Stamps.com (STMP $82-$99-$286) made it work—at least until last week. After ending its exclusive partnership with the USPS, the company’s shares went from $200 to $100 in one session. Of course, the smarmy lawyers immediately came out of their hovels to begin soliciting investors for a massive class action lawsuit. A great lesson for traders interested in only the technicals of a stock—not the fundamentals of a company. Unless you were an insider, you wouldn't have known that the company would sever its ties with the source of its primary product, but that didn't mean you couldn't evaluate the efficacy of the company's offerings. What was the unique value proposition of the products (ease)? How wide was the company's moat (pretty wide as long as the deal was in place)? What could go wrong (a lot)?
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AMZN
NYC |
After officially abandoning their HQ2 plans we must ask, what made Amazon believe they would be welcome in NYC? (14 Feb 2019) In our last report, we outlined the reasons why NYC was a questionable choice for Amazon's (AMZN $1,307-$1,625-$2,051) enormous HQ2 project, so no need to rehash. However, it is now official: the world's third-largest company (Microsoft and Apple just leapfrogged in front of them) has announced the deal is off. We said that this was the best course of action Amazon could take at this point, and for anyone doubting it, just consider what Amazon "supporter" and NYC Mayor Bill DeBlasio tweeted after they pulled out: "You have to be tough to make it in New York City...Amazon threw away the opportunity they were given...." Wow, with supporters like that, who needs opponents? Yes, mayor, it is tough to live in NYC, just ask the groundhog you killed while touting him a few years back. What a great analogy: you held Amazon lovingly in your arms, and then you threw them to the ground. Arrogance and socialism—what a combination. To his credit, Governor Cuomo placed the blame where it belonged—on the state senate and the individual politicians who manifested a political football out of the deal to further their own careers. The New York Times' Andrew Ross Sorkin, a lifetime New Yorker and a reasonable voice from the left, was near apoplectic. He called out the mayor for his sophomoric tweet, and said the city will pay the price for this dangerous message they sent to the business community. Opponents, however, were too busy spiking that imaginary football to hear his warning. While Amazon won't pay any long-term price for this botched deal, it does make us question management's strategic thinking. They turned a brilliant marketing opportunity into an embarrassing mea culpa. The real winners? Virginia and Tennessee, the states which welcomed the Amazon investment with open arms. Of course, Virginia currently has a mess of its own it is trying to deal with. And an interesting side-note: signed contracts on the purchase of condos and other, similar pieces of property within Long Island City spiked 180% after Amazon announced it was coming to town. Imagine how those buyers feel now.
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AMZN
NYC |
The real reason for the NYC opposition to Amazon: it is a non-union shop. (11 Feb 2019) Of all the pro-business cities which were vying for the coveted prize of landing Amazon's (AMZN $1,266-$1,596-$2,051) second headquarters, it struck us as quite odd that the company selected one of the most pro-union, anti-business, high-tax cities in the country: New York City (well, technically the Long Island City neighborhood of Queens). Forget the incentives, why would any business willingly go into this battleground environment unless they had to? Even some financial institutions have fled the "financial capital of the world" for greener (literally) pastures. We just felt it was a bad choice. Now, it appears that Amazon executives may be coming to the same conclusion. The company hasn't purchased any real estate in Queens yet, which may be their saving grace as the move is facing mounting opposition by local lawmakers, labor unions, and "civic action groups." What makes all of this so ironic is that the ultra-far-left mayor of New York, Bill de Blasio, as well as the far left governor of New York, Andrew Cuomo, both celebrated the decision. After all, Amazon would create roughly 25,000 new jobs—with an average salary of $150,000 per worker—in the region. Governor Cuomo voiced his anger at the opposition by stating, "You know what the incentive package was? We get $27 billion in revenue, they get $3 billion back. I would do that all day long." NYC Council Member Jimmy van Bramer pointed out the elephant in the room during a semi-heated exchange with CNBC's David Faber Monday morning. After calling the deal a "pyramid scheme" (huh?), he mentioned three times in five minutes that Amazon is a non-union shop and that the company would fight any efforts by employees in New York to organize. And there you have it. Whether the company is Walmart (WMT) or Amazon, that is simply an unacceptable stance. It reminds us of that great scene in Independence Day when the president asks the alien, "what do you want us to do?" The alien's reply? "Die." The wisest course of action for Amazon to take at this point would be to pull out of the deal, placing the onus on the NYC legislative opponents. Then, select a welcoming, business-friendly town for the new HQ2. For such a seemingly well-managed company, this was simply a strategic blunder—they should have seen it coming.
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AMZN
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How Jeff Bezos lost $65 billion overnight. (09 Jan 2019) At the end of 2018, Amazon (AMZN $1,237-$1,653-$2,051) founder and CEO Jeff Bezos retained his title as the world's richest person, and it wasn't even close. Bezos finished the year out with a cool $130 billion or so under his belt, in one form or another. The world's second richest person, Bill Gates, came in at a paltry $90 billion (though it should be noted that most of these ultra-wealthy individuals give away enormous amounts of their wealth each year to charitable organizations). Bezos may just move down about six notches on the list this year, however, as one action will separate him from half of his wealth: he and his wife MacKenzie have announced their divorce. Under Washington state law, assets gained over the course of a marriage are split down the middle, with each side getting half. Actually, the divorce appears quite amicable, and the two will continue their joint work on the the Day One Fund, their charitable organization. The two have been married for 25 years; he is 55, she is 48. Amazon dropped a bit on the news, but this is a company we fully expect to (as amazing as it sounds) double in size over the next several years. It will be interesting to watch the proceedings, however, to see how Bezos's control of 16% of outstanding AMZN shares are affected. This is going to be one complex split from a financial standpoint.
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APRN
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Blue Apron just became a penny stock. (18 Dec 2018) When I was a relative "kid" in the 1980s, I had a subscription to a weekly newspaper called The Penny Stock News. It listed all of the publicly-traded stocks with share prices below $10. One issue I recall highlighted a company called The Puerto Rican Cement Company, which had just risen some 5,000% in price, moving from something like a dime up to five bucks or so per share. Home meal kit provider Blue Apron (APRN $1-$1-$5) should be so lucky (to be trading at $5). They would, however, now qualify to be an entry in The Penny Stock News, as their share price fell to $0.87 on Tuesday. It was a slow-moving train wreck from the start. With so much competition, what were the owners thinking? They could have stayed private and eked out a nice living for themselves, outside of the spotlight of the investing public. There was just too much competition in the space, with no real unique value proposition (UVP) for any one of these companies. We said back in September of 2017 that the company's only hope was to find a deep-pocketed buyer, such as Walmart (WMT) or another grocery chain. Well, Walmart has started their own meal kit business, Albertson's has purchased Blue Apron competitor Plated, and Kroger (KR) acquired Home Chef, so it is not looking good for the new penny stock. It's easy for founders to be blinded by the perceived value of a company they started, but there is no excuse for investors not to consider a company's unique value (or selling) proposition. If the products or services can't justifiably stand out from the competition in any meaningful way, what would be the catalyst for purchasing shares? A question that investors who got in on the IPO of Blue Apron are probably asking themselves right now.
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AMZN
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(Without a government mandate,) Amazon raises minimum wage to $15/hour. (02 Sep 2018) It is amazing how many people—and the dolts they elect to represent them—don't understand basic economics. That thought came to mind as we read the Amazon (AMZN $950-$2,007-$2,051) press release announcing the company's plans to raise the minimum employee wage to $15 per hour. Why do it? Because the company now has a quarterly free cash flow of $4.2 billion and earnings per share of $6.32. And, they want to attract and retain the best workers in an ultra-tight (thanks to America's booming economy) labor force. This new minimum wage will also apply to the 100,000-strong temp workforce the company will bring in for the Christmas holiday season. Don't believe what Crazy Uncle Bernie says, this occurred because of the company's profitability, not government pressure. If Crazy Uncle Bernie wants to take credit, let him.
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WMT
AMZN GOOG |
Walmart notches major win against rival Amazon in Flipkart deal
(04 May 2018) Few would argue the fact that India is in line to become—economically speaking—the next China. With nearly 1.4 billion citizens and a democratic government which is undertaking major economic reforms, the Indian market holds unfathomable potential. Within India there is a company called Flipkart. This company is to India what Alibaba (BABA) is to China, or Amazon (AMZN) is to the United States. And Penn Global Leaders Club member Walmart (WMT $73-$86-$110) just got the green light to buy 75% of the firm, with Amazon being shunned in the process. Walmart has been working closely with Flipkart executives for the past several years, earning their trust and respect. Amazon rode in recently with an offer to buy the entire company and pay a $2 billion breakup fee. If reports are correct, the board stood by their friends at Walmart. Japan's SoftBank (controlling owners of telecom firm Sprint) will reportedly sell their 20% stake in Flipkart to allow the deal to go through. Another Amazon competitor, Alphabet (GOOG), will likely participate in the deal with Walmart. This was a huge win for the Arkansas-based retail giant. |
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WMT
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Walmart is giving its website—and its image—a much-needed makeover
(17 Apr 2018) We're rooting for Walmart (WMT $73-$88-$110) in its attempt to move boldly into the digital world. Not only because the company is one of the 40 members of the Penn Global Leaders Club, but also because we are tired of the dearth of competition for online juggernaut Amazon (AMZN). To that end, we cringe every time we visit and navigate the Walmart website. It sort of looks and feels like the aisles at the physical stores—cramped and unfriendly. We are thrilled to announce that this situation is about to change (at least the online part of the equation). The company has been teasing a major revamp headed to its online location this May, promising a friendlier environment and dynamic new "specialty shopping experiences." When the word "fashion" is mentioned, not many Americans think Walmart. The company is trying to change that image and attract a new demographic group of higher-end online shoppers. Marc Lore (like "story"), the brilliant executive picked up with the acquisition of Jet.com, is spearheading the new effort to make Walmart a fashion destination. Can the company pull it off? We believe they can, and they will. |
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AMZN
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Drug chains rally on news that Amazon may abandon grand health care plans
(16 Apr 2018) The stocks of CVS (CVS), Walgreens (WBA), and other drug retailers were having a pleasant day in the green after a rumor surfaced that Amazon (AMZN $888-$1,438-$1,618) was about to shelve its plans to sell drugs through its Amazon Business marketplace. The company will, instead, focus on selling more generic supplies and equipment to hospitals and clinics through its B2B Amazon Business. According to reports, the company ran up against a brick wall of industry allegiances and a labyrinth of factors unique to the health care procurement system. Sorry, Amazon, you weren't able to disrupt this industry like you had hoped. But you still have a captive audience for your unregulated Class I medical devices, such as enema kits and elastic bandages. |
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AMZN
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Amazon just became the world's second most valuable company
(21 Mar 2018) While Internet search engine and services provider Alphabet (GOOG $824-$1,096-$1,198) has floundered (well, comparatively) this year, e-commerce giant and Penn Global Leaders Club member Amazon (AMZN $834-$1,587-$1,618) has surged. So much so, in fact, that the latter has supplanted the former as the world's second largest company. As of Tuesday's close, Amazon's market cap was valued at $768 billion versus Alphabet's paltry $762 billion. Investors are putting a premium on Amazon based on an enormous projected growth trajectory for the company's cloud computing business, which is being used to fund other areas, such as the Whole Foods purchase and new physical stores. From a valuation standpoint, the p/e of Amazon is a whopping 258, compared to Alphabet's 61. For comparison's sake, the world's most valuable company, Apple (AAPL, $889 billion), has a p/e of just 18. It is also a member of the Global Leaders Club. |
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AMZN
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Amazon's next target industry: banking?
(05 Mar 2018) Amazon (AMZN $834-$1,524-$1,528) is reportedly in talks with several big banks to explore the possibility of offering some type of checking account to its members. While the goal is not for Amazon to actually become a financial institution, it does want to get bank and checking accounts, complete with debit cards (of course), into the hands of the younger generation—many of whom currently don't have accounts. JP Morgan (JPM) and Capital One (COF) are two of the banks offering bids. Recall that Walmart (WMT) tried to get into the banking business (for similar reasons) over a decade ago, only to run into a brick wall of government and financial institution opposition. For that reason alone, this will be an interesting case study in who is allowed into the "club," and why. Who knew some adults didn't already have bank accounts? |
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APRN
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Blue Apron jumps 10% on earnings report, gives it back during the trading day
(13 Feb 2018) Beleaguered meal-kit delivery company Blue Apron (APRN $3-$3-$11) was trading up by double-digits early Tuesday morning after announcing it could break even on its EBITDA (earnings before interest, tax, depreciation, and amortization) as soon as the fourth-quarter of this year—well before analysts had expected. By market close, however, investors began to doubt that claim, and the stock finished precisely flat. After investing in a costly new distribution hub, the company is cutting marketing expenditures and will place increased focus on squeezing more out of existing customers. This might not be the best strategy, as they lost 15% of that customer base year-over-year. The company reports having just 746,000 customers right now, so perhaps building on that base might be the best use of assets. |
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AMZN
TGT M JWN |
With Whole Foods under its belt, is Amazon setting its sights on Target?
(03 Jan 2018) Well respected industry analyst and venture capitalist Gene Munster made a bold prediction this week: after digesting the purchase of Whole Foods, internet giant Amazon (AMZN $754-$1,204-$1,213) will set its sights on retailer Target (TGT $49-$67-$74). While the Whole Foods purchase certainly makes this potential takeover a little more probable, we still don't see it happening. Yes, Amazon wants to move into fashion retail like it did (or is doing) into food retail, but gobbling up a $37 billion, somewhat questionable retailer may not be the best solution. Why not pick up a mere $8 billion company, like Macy's (M) or Nordstrom (JWN) instead? Not that Target's clientele wouldn't be a good fit for Amazon, and they are certainly in the target demographics; but, if it does happen, we believe it will more of a sign that Wal-Mart's (WMT) recent online success has gotten into Jeff Bezos's head. |
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WMT
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Penn member Wal-Mart surges on earnings
(15 Nov 2017) With Amazon's ascendency, Wal-Mart (WMT $65-$96-$96) could have easily joined the likes of Target in the retail dumpster. Instead, through skillful leadership at the top, the company made defeating Amazon at their own game a major strategic goal. And it is paying off. The retailer, which we own in the Penn Global Leaders Club, spiked more than 7%—to an all-time high—on Thursday's open after its earnings report shows just how strongly its internet push is paying off. Try this on for size: while US comparable store sales were up by 2.7% for WMT in Q3, digital sales rocketed up 50% for the quarter. The company's latest digital push? Lord & Taylor will have its own "flagship store" on a dedicated landing page at Wal-Mart's website, buttressing the company's new push into upscale fashion. |
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AMZN
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Amazon is cutting prices to gain market share, even if it means paying the difference themselves
(06 Nov 2017) Internet retail behemoth Amazon (AMZN $710-$1,123-$1,125) never had a problem slashing prices on goods it sells directly to consumers. Until now, however, that process never bled over into the goods they sell for third-party vendors. Recently, however, the $541 billion company began cutting prices on those goods as well, making up the difference out-of-pocket. The tactical goal is to compete more effectively with big retailers like Wal-Mart and Dollar General this holiday season. This is a rather heavy-handed technique, and one which could alienate vendors. This is because Amazon does not tell a seller when they are going to do this for one of their products. In other words, it may not just be about receiving a set amount of money for a specific product, it may well be that a vendor does not want their products arbitrarily placed on sale. Or, even worse, it may violate price agreements which that vendor has in place with other sellers of their goods. How is it affecting Amazon's bottom line? Consider this: the company's gross revenues were up 34% in the past quarter, but profits went from just $252 million (in Q3 of 2016) to $256 million (Q3 of 2017). |
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APRN
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Just when it seemed things couldn't get worse for Blue Apron...
(19 Oct 2017) We've said it before and we'll say it again: Blue Apron (APRN $5-$5-$11) had no business going public. After just four months of trading on the exchange, the company has already lost half of its value and is now trading near its low of $5 per share. Just when it seemed things could not get any worse, employees of the meal kit delivery company received a letter explaining why the company was about to cut 6% of its workforce. APRN already had a hiring freeze in place, and laid off 14 members of its recruiting team two months ago. |
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GOOGL
WMT AMZN |
Wal-Mart teams up with Google to take on Amazon (got that?)
(23 Aug 2017) If there is one company in the world which will never surrender to Amazon (AMZN $710-$958-$1,083), it is Wal-Mart (WMT $65-$80-$82). The Bentonville-based retailer just teamed up with one of the five companies larger in size than Amazon, Alphabet (GOOGL $744-$943-$1,009), to beat the Amazon Echo at its own game. Using special technology which only Wal-Mart currently utilizes, the Google Home device will be able to express order grocery items using a customer’s past shopping patterns. For example, if you say, “Hey Google, order me some coffee,” the device will know that you drink Starbucks French Roast pods and have the goods sent from Wal-Mart to your home via Google Express. Google says that this technology is available to other retailers, but it made sense to start with the world’s largest grocery chain. That is a direct competitive threat to Amazon Prime and the Echo device. |
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APRN
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(10 Aug 2017) Blue Apron delivers very first earnings report: loss less than expected.
Food kit delivery company Blue Apron (APRN $6-$6-$11) just released its very first earnings report as a publicly-traded company. Good news! The company didn't bleed as much money as expected. Over the course of the past quarter, APRN sold $238 million worth of product (vs $235M expected) and had an operating loss of $23.9 million (less than the $24.3M expected loss). The average Blue Apron customer buys $251 worth of boxed meal kits per year, and the company’s customer base increased by 23% from a year ago. The stock jumped about 7% on the earnings report, but is still down about 37% from its IPO last month. |
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AMZN
APRN |
(17 Jul 2017) Blue Apron drops another 7% as Amazon shows interest in the space.
We had serious doubts about the ability of Blue Apron (APRN) to make it in the publicly-traded world due to the crowded competition in the space. Now, it appears that the really big dog of online retail wants to get in on the action. APRN was trading down about 7% Monday morning after reports surfaced that Amazon (AMZN) has applied for a trademark to get into the meal kit business. The new service will carry the tagline "We do the prep. You be the chef." It is hard to imagine how Blue Apron will differentiate itself after a $500 billion company enters the fray. |
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NKE
AMZN |
Nike has been a top-seller on Amazon, just without the company’s permission
Last week we mentioned on one of our sites that athletic footwear giant Nike (NKE) would soon begin selling its products directly on Amazon (AMZN). We should have put that more explicitly: Nike will begin “officially” selling its shoes and other sportswear on Amazon beginning July 13. Nike has always been very select and controlling with respect to the third-party vendors offering their wares, even having input on how much those vendors could charge their customers. The problem was, as it turned out, a lot of those vendors also had a big presence on Amazon, and the online retailer listed Nike products as some of their best sellers. In other words, Nike was doing business on Amazon, it just had no control over that business. Nike’s previous business model made sense. Higher-end brands will often limit sales, for example, to maintain at least the illusion of extreme demand for a product. Coach (COH) and Tiffany (TIF) come to mind. But this rouse would no longer work for Nike, with so many third-party vendors pushing their product on Amazon. It simply made more sense to cut out the middle (middle) man and sell directly on the site themselves, giving Amazon a tiny cut. Interestingly, Nike has sold their products for years on Zappos.com, an online shoe site that was purchased by, you guessed it, Amazon back in 2009. From Amazon’s standpoint, the deal comes at a perfect time. It is making a major push into the fashion market, and just unveiled its new Prime Wardrobe program which will allow customers to try on clothes before they buy them. The items (must be at least three from one of their preferred vendors) come in a resealable return box, complete with return shipping label attached. That is actually a brilliant idea, as we suppose most customers would choose to simply keep the items and be billed for them. Odds are the Nike/Amazon deal was being put hammered out before the clothing retailer got wind of the brewing Whole Foods acquisition. But Nike’s management team has proven to be, with a few notable exceptions, a highly skilled marketing machine. This deal should be lucrative for both parties. (Which one of these companies is in the Penn Global Leaders Club? Members, see The Penn Portfolios) |
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APRN
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Can Blue Apron really make it as a publicly-traded company
You can bank on it—somebody comes up with a good idea, and all of the uncreative copycats come rushing in. In a vacuum, the concept of a meal-delivery firm mailing out make-at-home kits, complete with recipe cards, seems like a winner. You can imagine all of the “Aha!” moments emanating from commercial kitchens across the country when Blue Apron launched its business five years ago. Now, half-a-decade later, we have Blue Apron, HelloFresh, Plated, Purple Carrot, PeachDish...ad nauseum. So why, in this suddenly crowded niche market, would Blue Apron role the dice and go public? The company believes that, with the proper bankroll, it can dominate the industry. And let’s face it, just like the plethora of frozen yogurt chains that hit the streets a decade or so ago, most will fail but a few will thrive. That being said, investors are suddenly having the same misgivings about the IPO that we had upon reading the press release. Blue, which will trade under the NYSE symbol APRN, has already been forced to cut back its IPO price from between $15 and $17 per share to a range of $10-$11/share. Initial pricing valued the firm at over $3 billion, while the 35% haircut values them around $2 billion. In a real dollars-and-sense analysis, this means about $100 million to the company at IPO. What are some of the factors we do like with respect to this company versus its rivals? It was an early entrant, meaning it has built up a nice infrastructure and has made it through the learning curve. It also has a nice Rolodex (dating ourselves with that reference) of clients, which tend to be “sticky.” Also, we love the fact that Blue Apron has acquired BN Ranch, created by the “godfather of sustainable meat,” Bill Niman. BN Ranch is a network of farms in California and New Zealand which raises grass-fed cattle and free-range turkeys. Niman will remain on with the company to help build a supply chain for the beef, pork, and poultry shipped in Blue Apron’s eight million monthly meals. For all its efficiency and experience, Blue Apron has never turned a profit, and the company is burning through cash at an alarming rate. It could be said, in fact, that the company needed this IPO to remain in business. That does not give investors warm and fuzzy feelings. Should you invest? See our recommendation in this coming Sunday's Penn Wealth Report, Vol. 5, Issue 02. |
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AMZN
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(24 May 2017) Amazon's final slap-in-the-face to book retailers: the physical Amazon bookstore. Remember when B-Dalton and Waldenbooks ruled the shopping mall? Then along came Borders and Barnes & Noble (BKS $7-$7-$14), running the old ruling class out of business. Now, just Barnes & Noble remains, feebly trying to fend off Amazon's (AMZN $682-$975-$975) digital book threat. (Note how one company is hitting an all-time high and the other an all-time low.) In what could ultimately become the most damaging insult of all, Amazon just opened their 7th physical bookstore, this time in NYC. Barnes has always argued that bibliophiles want to touch, flip through, even smell the physical product before buying. Now they can do just that—at a physical Amazon bookstore. Amazon claims the move is not just a ploy to stick the final nail in the coffin of BKS, and they say they have every intention of turning a profit at the brick-and-mortar outlets. It's just that they don't need to. Like their Amazon Go cashier-less convenience stores, and their AmazonFresh grocery stores, Amazon Books is simply part of their plan to dominate the retail environment. We don't like him per se, but it sure doesn't pay to bet against Jeff Bezos' largest company. His Blue Origin and Washington Post toys are a different story.
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AMZN
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(15 May 2017) Amazon, 20 years later: a 64,000% return. Twenty years ago today, a Seattle-based online bookstore went public. Two decades later, and that little online retailer stands taller (in market cap) than two Walmart's put together. According to The Australian Business Review, a $10,000 investment in Amazon (AMZN $682-$963-$963) at the time the company began trading would now be worth $4.9 million. That would have been a nice little nest egg for retirement. With its dominance in the online retail space and the explosive growth potential of the company's cloud infrastructure business, Amazon Web Services, the company's stock remains a great place to put long-term investment capital—the 64,000% return since inception and all.
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AMZN
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(02 Apr 2017) Amazon finally capitulates on sales tax battle. A decade ago, avoiding state sales tax was a major benefit to shopping online, and Amazon (AMZN $585-$887-$890) was already cornering the online sales marketplace. Needless to say, it didn't take long for greedy, money-hungry politicians to realize that their citizens—you know, the ones who elected them—were getting away with murder. After all, no state sales tax meant less goodies to pass out in preparation for the next election cycle. Amazon argued, rightly so, that there should be no sales tax levied on consumers who live in states where there is no physical Amazon presence. You could probably guess the first state to screw their residents by forcing Amazon to charge a sales tax and send them the proceeds. Of course, it was none other than New York, back in 2008. Now that more and more states have passed similar laws, Amazon is finally capitulating. On Saturday, the 1st of April (no joke), the online retailer began charging every member, regardless of location, state sales tax.
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WMT
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(21 Feb 2017) Wal-Mart's e-commerce sales soared in Q4. Last year we discussed Wal-Mart's (WMT $63-$72-$75) purchase of jet.com and the impact it could have on e-commerce giant Amazon (AMZN $533-$856-$858). That prediction appears to be coming to fruition, as the Arkansas-based retailer grew its online sales by an implausible 29% last quarter. This complete turnaround in fortunes can be almost directly traced back to Marc Lore, the founder of jet.com and someone Amazon's Bezos let slip through his fingers. WMT has given wide latitude to Lore for the re-design of its e-commerce business. As for the brick-and-mortar side, Wal-Mart grew its customer base for the ninth straight quarter and increased its same-store sales. The stock also rose on the news—up over 3% on Tuesday.
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Forget what Amazon’s (AMZN) narcissistic CEO, Jeff Bezos, would like you to believe, his company cannot hold a candle to retail giant Wal-Mart (WMT) in one paramount metric: total revenue. In fact, take WMT’s total sales revenue and divide it by five and you will get down to Amazon’s altitude. In other words, based on sales, if Wal-Mart is a Dreamliner, Amazon is a Cessna 172. That is one reason we find it curious that most retail critics are so quick to dismiss the Bentonville-based company’s most recent pickup—Jet.com—and the impact it could have on Amazon.
The deal.
Before getting into the question of why Wal-Mart initiated the deal, let’s take a look at the details. Jet.com is a privately-held firm started by entrepreneur Marc Lore (like “story”) in July, 2015. Lore already had his bona fides in the industry—he had previously sold Diapers.com (and accompanying Soap.com and Wag.com) to Amazon for just over $500 million.
His goal for Jet.com was simple in its mission; audacious in its scope: under-price Amazon and grow from zero to $40 billion within five years. One year in, the company isn’t even close to its goal trajectory, which is why it has agreed to be purchased by WMT for $3.3 billion—$3 billion in cash and $300 million in WMT shares. Lore had secured roughly $500 million in private funding, and he built an impressive algorithmic pricing system for the efficient transfer of its 4.5 million goods to customers, but he was burning through cash at an unsustainable rate.
Amazon has owned the online space.
The company has continued to bleed money because it truly does undercut Amazon (by an average of 15%, in fact), even if that means selling goods at a loss. It had hoped to make up for these losses by charging $50 per year for a membership until its customer base hit critical mass. After missing its membership numbers, however, it was forced into cutting out the fee. With Amazon’s size and power in the e-commerce world, Lore’s stellar goals were about to hit the event horizon—the point of no return.
Lore is quite familiar with the way Amazon crushes its competition, as evidenced by his Diapers.com experiment. While the site offered baby care products at a reduced price, Amazon simply moved in, dramatically reduced its own prices on the lines, and absorbed the losses until Lore was forced to sell...to Amazon. Lore was sucked into the mother ship, spending two years at Amazon’s HQ in Seattle. After his non-compete was up, he started Jet.com. But what had the astute and passionate entrepreneur gleaned about corporate strategy after two years in Amazon’s underbelly?
The real prize.
Lore made no secret of his dislike for Amazon when he started Jet.com, as is evident in his ambitious plans to humble the company. That certainly didn’t happen, but how prescient was Doug McMillon, Wal-Mart’s CEO, in forging an alliance with Lore? They had a common enemy and complementary weapons to bring to the table.
Wal-Mart has the size and pricing advantage over Amazon, but its nascent efforts to break into the e-commerce arena had floundered. Lore had built up the infrastructure and algorithmic delivery system, but lacked the clout needed to browbeat merchants into lower prices.
Where others see an overvalued premium paid, we see a brilliant strategic move to bloody Amazon’s arrogant little leader.
The deal.
Before getting into the question of why Wal-Mart initiated the deal, let’s take a look at the details. Jet.com is a privately-held firm started by entrepreneur Marc Lore (like “story”) in July, 2015. Lore already had his bona fides in the industry—he had previously sold Diapers.com (and accompanying Soap.com and Wag.com) to Amazon for just over $500 million.
His goal for Jet.com was simple in its mission; audacious in its scope: under-price Amazon and grow from zero to $40 billion within five years. One year in, the company isn’t even close to its goal trajectory, which is why it has agreed to be purchased by WMT for $3.3 billion—$3 billion in cash and $300 million in WMT shares. Lore had secured roughly $500 million in private funding, and he built an impressive algorithmic pricing system for the efficient transfer of its 4.5 million goods to customers, but he was burning through cash at an unsustainable rate.
Amazon has owned the online space.
The company has continued to bleed money because it truly does undercut Amazon (by an average of 15%, in fact), even if that means selling goods at a loss. It had hoped to make up for these losses by charging $50 per year for a membership until its customer base hit critical mass. After missing its membership numbers, however, it was forced into cutting out the fee. With Amazon’s size and power in the e-commerce world, Lore’s stellar goals were about to hit the event horizon—the point of no return.
Lore is quite familiar with the way Amazon crushes its competition, as evidenced by his Diapers.com experiment. While the site offered baby care products at a reduced price, Amazon simply moved in, dramatically reduced its own prices on the lines, and absorbed the losses until Lore was forced to sell...to Amazon. Lore was sucked into the mother ship, spending two years at Amazon’s HQ in Seattle. After his non-compete was up, he started Jet.com. But what had the astute and passionate entrepreneur gleaned about corporate strategy after two years in Amazon’s underbelly?
The real prize.
Lore made no secret of his dislike for Amazon when he started Jet.com, as is evident in his ambitious plans to humble the company. That certainly didn’t happen, but how prescient was Doug McMillon, Wal-Mart’s CEO, in forging an alliance with Lore? They had a common enemy and complementary weapons to bring to the table.
Wal-Mart has the size and pricing advantage over Amazon, but its nascent efforts to break into the e-commerce arena had floundered. Lore had built up the infrastructure and algorithmic delivery system, but lacked the clout needed to browbeat merchants into lower prices.
Where others see an overvalued premium paid, we see a brilliant strategic move to bloody Amazon’s arrogant little leader.
Despite the Size and Strength of their Competition, Amazon Continues to Dominate Online Retail
(26 Oct 15) Sure, the company has yet to turn an annual profit, and senior management spends like a drunken sailor, but AmazonAMZN remains the undisputed heavyweight of online shopping. All of this despite the Herculean efforts of companies like Wal-MartWMT and Macy’sM to make headway into the arena.
Last Friday, following the company’s Thursday night earnings conference call, Amazon hit a fresh all-time high of $619.45. Although the profits amounted to a meager $79 million (the market cap of the company is $280 billion, compared to Wal-Mart’s $188 billion), this was the second straight quarterly report that surprised analysts on the upside.
And it certainly wasn’t cost cutting measures (a foreign concept to Jeff Bezos) that added to the bottom line, as top line sales soared 23%, hitting $25 billion. Amazon Web Services (AWS) has been, perhaps, the biggest surprise for analysts. AWS is a cloud platform designed to provide fast access to large computing capacity.
The second surprise earnings report in a row comes as big retailers like Wal-Mart and Macy’s are undertaking major efforts to take back market share from Amazon. According to analyst house Cowen & Company, the online juggernaut will surpass Macy’s by 2017 as the number one seller of garments in the United States. In fairness, this is speculation only; but considering Amazon’s apparel business will hit $16 billion in sales this year, compared to Macy’s $22 billion, it is certainly possible.
Wal-Mart is the other major competitor gunning for Amazon, but it is coming up short as well. Let’s face it, were it not for Amazon’s massive success, Wal-Mart would still be dithering in the online world. It appears to have cobbled together a patchwork attack plan rather than a serious strategic vision to take back share.
We would argue that consumers don’t want to go to a local store in a few days to pick up merchandise ordered online. The American consumer now expects to have goods delivered to their door, quickly, and inexpensively. Game and set to Amazon.
(Reprinted from this coming Sunday’s Journal of Wealth & Success, Vol. 3, Issue 42.)
Amazon Business Marketplace Launches
(28 Apr 15) When most of us think of AmazonAMZN, we picture a cool place for individuals to buy books, specialty items, groceries, and nearly everything else. But the Seattle-based company has been quietly building out a mammoth B2B infrastructure. This has culminated in Tuesday’s launch of Amazon Business, a platform for companies to do everything individuals can do with the firm, but in scale.
The company set the tone for this new push back in 2012 with the launch of AmazonSupply, which offered businesses a choice of 2.2 million products across 17 categories, from construction to office supply to janitorial equipment. Little did we know that this was just a testbed for the company to tap into the $7 trillion B2B market.
Companies can register for an Amazon business account and purchase business-only items at discounted pricing and receive free, 2-day shipping on orders of $50 or more. Company buyers seem thrilled at the prospect of “one-stop shopping,” instead of spending valuable time and extra money to do business with a multitude of specialty supply companies.
Organizations of all sizes can open a B2B account with Amazon, as long as they have a business tax ID number. Shares of Amazon have gapped up twice so far in 2015...
(Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 18.)
(OK, got it. Take me back to the Penn Wealth Hub!)
Amazon Workers Reject Bid to Unionize
(16 Jan 14) It was a major test for the online retail superpower--following a tussle with the German workers' union Ver.di at several facilities in Europe, and a show of sympathy by unions in America who protested outside of the company's Seattle headquarters, Amazon has beaten back a bid by organized labor to gain a foothold at the firm. A group of Amazon workers in Delaware have voted down a proposal to join the International Association of Machinists and Aerospace workers (IAMAW) by a vote of 21-6. A union spokesman rebuffed the loss, saying that it often takes several election cycles for organized labor to gain a foothold.
Of course, it was the same old canned talking points from the union point of view. They claimed that oppressed workers came to them, and it was only after intense, thug-like pressure from the man (Amazon) that the workers backed down and voted against organizing. Interestingly, they are talking about a company founded by Jeff Bezos, its current CEO, who is known for his progressive attitude toward workers and the workplace environment. For anyone familiar with Bezos, these attacks seem vacuous. While the vote for unionization would have applied only to the 30 equipment maintenance technicians in Delaware, it would have been the foot in the door for the IAMAW. While pro-labor workers can begin collecting signature cards for another vote, under NLRB rules they must wait at least one year before voting again.
Amazon spokeswoman Mary Osako said in a statement that this vote made it clear employees prefer a direct connection with the company over a third-party intermediary. She went on to tout the firm's culture, competitive wages, and comprehensive benefits packet, such as the 401(k) plan's 50% company match. As is typically the case, when a company's employee stakeholders feel they are an integral part of the corporate culture, organized labor is left outside in the cold, picket signs in hand. Perhaps that is the reason why union membership is growing only in the government sector.