Unilever acquires Tazo tea brand from Starbucks for $384 million

Along with releasing their always-anticipated annual holiday cup, Starbucks made another announcement this week as well. The coffee mega-giant is selling their Tazo tea brand to Unilever for $384 million as they say they will be focusing on Teavana as their sole tea brand. The sale includes all recipes, intellectual property and inventory.

Tazo, founded in 1994, was sold to Starbucks just five years later for $8.1 million. The brand is primarily sold in grocery stores. Consumers can buy Tazo as a packaged tea, K-Cup pod or in bottled-form.

Tuesday’s announcement was made as Starbucks released their fourth-quarter results and 2017 financial results. The final numbers came in much lower than Wall Street expected and the markets showed it. Starbucks’ fourth-quarter revenue came in at $5.7 billion. Experts were projecting to see at least $5.8 billion in revenue from the company.

Store sales also lagged behind. The company reported a two percent growth in its global comparable store sales. This number too came in lower than estimated; the Consensus Metrix projected a 3.2 percent growth in that sector.

Although the net income for the quarter also slipped, the outlook wasn’t all that bleak. Starbucks reported a five percent growth in full-year revenue at $22.4 billion.

The sale is perhaps not that surprising, after all, Starbucks announced back in July that it would be closing all 379 brick-and-mortar stores for its other tea brand, Teavana. However, closing down shop for Teavana may have more to do with the changes in how consumers shop than sales. In fact, Starbucks announced that sales for their tea category continue to grow.

“The tea category in Starbucks stores continues to grow double-digits globally,” the company’s announcement read. “With Starbucks well on its way to building the Teavana business to over $3 billion over the next five years.”

Over the past year, Starbucks has sold over $1.6 billion worth of Teavana product in stores. They’ve also launched bottled, ready-to-drink Teavana tea through a partnership with Anheuser-Busch InBev. Next year, the company plans to start selling packaged Teavana teas as well.

In the next five years, Starbucks plans to grow their Teavana line into a $3 billion business.

Kevin Johnson, president and chief executive officer at Starbucks, underscored the importance of Starbucks’ tea category and impressed the company’s desire to focus solely on Teavana.

“Over the past five years, we have established Teavana as our primary global brand focused on the premium tea segment. With our growth strategy for premium tea exclusively focused on Teavana, we are pleased to transition our Tazo business to Unilever,” Johnson had to say about the sale.

And Starbucks should be pleased. As Forbes puts it, the nearly $400 million sale to Unilever “marks a more than 47-times return on investment.”

Unilever is already home to many well-known food and drink brands, like Ben & Jerry’s, Lipton, Pure Leaf, Klondike, Breyer’s and much more. The UK-based consumer products behemoth’s leadership claims that, in addition to beefing up the company’s existing tea brands, the acquisition is targeted at millennials.

“With its strong appeal to millennials, Tazo is a perfect strategic fit for our US portfolio that includes exciting new brands such as Seventh Generation, Dollar Shave Club and Sir Kensington’s,” Kees Kruythoff, president of Unilever North America, commented on the news. “Tazo’s solid position in the fast-growing specialty tea segment, coupled with Unilever’s tea expertise, presents a fantastic growth opportunity.”

The announcement this week follows Unilever’s acquisition of the organic herbal tea brand Pukka Herbs back in September.

Bidding war for Amazon’s second headquarters is underway, here’s who’s on top

The bidding war for Amazon’s second headquarters began on Monday, and several cities have already submitted their proposals. New Jersey has submitted a bid for their city of Newark, offering up what could potentially be the greatest financial incentive for Amazon—$7 billion in tax breaks.

Just last month, Amazon announced a competition to source a location for their second headquarters. Dubbing it “HQ2,” Amazon is looking to spend up to $5 billion building the new hub, which will run in tandem with the Seattle-headquarters. The city lucky enough to land the gig would gain 50,000 jobs with an average salary of $100,000.

On the surface, Newark, NJ would appear to have everything Amazon is looking for. In the suburbs of New York City, Newark benefits from an extensive network of public transportation and even has its own airport. There are 60,000 students studying in six colleges and universities across Newark. This, combined with the proximity to other large metropolises like New York City and Philadelphia, means HQ2 would have an extensive talent network to pool from for future employees. Newark has some prime office space available for development, as well as more affordable housing than New York City or Jersey City.

Monday, New Jersey Governor Chris Christie announced their bid for HQ2. According to Fortune, the proposed $7 billion in tax breaks is broken down between state and city incentives.

The state has estimated that HQ2 could bring a potential $9 billion to the economy. As such, New Jersey is offering $5 billion in tax incentives over the next 10 years, but not before the 50,000 jobs are added. The city of Newark has also proposed a tax incentive, offering $1 billion in local property tax breaks and $1 billion worth of waived wage taxes for Amazon’s HQ2 employees over the next 20 years.

Amazon is allowing cities to submit their proposals through October 19.

Nearby Philadelphia is also reported to be ranked high on Amazon’s list of prospects. The city of brotherly love also proposed a tempting financial incentive, offering 10 years of property tax abatement. However, Fortune stipulates that it is “unclear” what, definitively, Amazon will gain from the plan.

Moody’s Analytics, a subsidiary of Moody’s Corp. providing economic and capital markets analysis, released a shortlist of cities they expect to be at the top of Amazon’s list. Coming in on top was Austin, TX. Austin was followed by Atlanta, Philadelphia, Rochester, Pittsburgh, New York City and the surrounding metro area, Miami, Portland, Boston and Salt Lake City.

The study first evaluated cities based on their adherence to Amazon’s laundry list of requirements for their new location. It also chose cities based on other economic factors. Other factors included: business environment, human capital, cost, quality of life and transportation.

One city that was absent from Moody Analytics’ list was Chicago, who submitted their proposal on Monday. Although Chicago’s announcement of their eligibility on Monday lacked details, Mayor Rahm Emanuel did release a statement.

“Chicago offers unparalleled potential for future growth for businesses of all sizes and is the ideal place for Amazon to build its HQ2,” the mayor’s statement read. “This bid will demonstrate to Amazon that Chicago has the talent, transportation and technology to help the company as it reaches new heights and continues to thrive for generations to come.”

Other cities have proposed to Amazon before submitting a formal bid. Kansas City’s mayor went on a reviewing spree on Amazon products. Georgia offered up a sizable amount of land totaling to a grand 345 acres; they even said they would name the site after the company, giving birth to the new city of Amazon, GA. A company in Tucson sent Amazon a 21-foot saguaro cactus to their Seattle headquarters.

Although amusing, the LA Times points out that such strategies to catch Amazon’s attention probably won’t amount to much. After all, the retail giant’s detailed seven-page request mostly highlighted financial incentives. Such incentives could materialize in the form of land, tax credits, relocation grants, workforce grants and fee reductions. These would be critical for Amazon, considering such incentives would allow the company to build a new “mega-campus” and offset “ongoing operational costs.”

Oh, and that 21-foot saguaro cactus? Amazon tweeted that they couldn’t accept the gift, “even really cool ones.” It was donated to Tucson’s Desert Museum. Better luck next time, Tuscon.

Featured image via Flickr/Robert Scoble

Nike losing teens in footrace with Adidas, analysts say

The investment bank and asset management firm Piper Jaffray released the findings of their latest biannual “Taking Stock with Teens” Survey, MarketWatch reports, and apparently, Nike is losing touch with teenagers. Instead, the demographic seems to be spending more with Adidas and Amazon.

Before you throw out your swoosh-covered sweats and socks, Nike (NKE) still holds court as the top clothing and footwear brand. The survey does relay that the sportswear giant is among the top brands that experienced the largest declines. Other household names that suffered sharp declines include: Ralph Lauren (RL); Steve Madden (SHOO); Ugg, (DECK); Fossil (FOSL); and Michael Kors (KORS).

Under Armour (UAA)  also took a hit from the survey, with teen males ranking it as the No. 1 brand classified as “old.” According to CNBC, Under Armour only got one vote among upper-income females as a brand favorite. Nike vs. Adidas aside, it actually seems as though the entire athleisure trend is beginning to lose favor with the teenage demographic. Only a third of teens chose athletic apparel as their preferred fashion pick, down 40 percent from last year. The overall trend moved towards festival fashion.

Piper Jaffray polled 6,100 teens across 44 states for the survey. The average participant’s age was 16; the average household income was $66,100.

After examining the results, analysts were most surprised by Nike’s decline compared to Adidas’ (ADS) surge in popularity. Adidas “doubled its mindshare,” going from 2 percent to 4 percent. Even with their rise, Adidas didn’t fully offset Nike’s losses.

“Overall, larger brands are ceding share for small brands,” Piper Jaffray analysts noted.

Analysts highlighted brands like Vans (VFC) and Supreme as rising in popularity.

Other familiar names ranked highly in the survey as well. Starbucks’ (SBUX) siren call resounded with teens from upper-income households (average yearly income of $101,000) as their top restaurant; it also ranked first among teens from median income households, those bringing in $55,000. Netflix (NFLX) chilled at the top for daily video consumption. Snapchat was the fan favorite for top social media platform. Turns out that teens don’t diverge much from their grownup counterparts when shopping, picking Amazon (AMZN) as their online retailer of choice.

One reason why Amazon has consistently ranked as teen’s favorite site for the past three years could simply be that the company knows their customer base well. Recognizing the opportunity to turn teen shoppers into lifelong customers, Amazon just announced that teens between 13 and 17 years old can now shop on their site with a personal login. Parents or guardians will receive an email or text with order details. Parents can then either approve the purchase or even set limits on their child’s spending.

Christian Magoon, CEO of Amplify ETFs, pointed out that Amazon’s strategy to capture a younger demographic was good for the company’s longevity, considering entire households can now be raised using Amazon smart home products.

“Younger generations rebel against things that are static,” Magoon highlighted, reasoning that other retailers should take notes from Amazon’s strategy.

“Amazon continues to innovate and grow,” he continued. “We’re not at peak Amazon. People are still excited about what’s next.”

Overall though, teen spending is down 4 percent compared to last year, CNBC reports. Teen spending accounts for 7 percent of the country’s retail sales, amounting to nearly $830 billion yearly.

Bitcoin plummets as economists, regulators express skepticism of cryptocurrency boom

Bitcoin’s value, which nearly quintupled from the first of the year through the first of September, peaking at $4,950.72 per coin on the latter date, has fallen more than 20 percent this month and over 15 percent in the past seven days, as of 4:15 p.m. EST Wednesday.

The decline comes as a number of regulatory agencies and economic experts around the globe express skepticism regarding Bitcoin and other cryptocurrencies.

China banned Initial Coin Offerings (ICOs)—the means by which creators introduce and raise capital for new cryptocurrency projects—earlier this month, and Chinese news outlet Caixin reported Friday that the country might prohibit cryptocurrency exchanges entirely in the near future, Business Insider notes. 

But, Bloomberg’s Lulu Yilun Chen tweeted Friday that the Chinese government had yet to mandate the shutdown of Okcoin and Huobi PRs, two of the country’s most prominent cryptocurrency exchange platforms.

Some say China will relax the pressure it has placed on the cryptocurrency market once the government has found a viable means of regulating that market.

“China [is] saying, ok, we need to push back on these for now until we figure out how to deal with them,” said Zennon Kapron, director of the Shanghai-based financial technology consultancy Kapronasia, per Reuters, in reference to the country’s ICO ban. Kapron added that he expects the country’s government to eventually ease the ban.

Previous Chinese regulations against cryptocurrencies have proved temporary. The country prohibited the withdrawal of Bitcoin investments in February, but allowed withdrawals to resume in June, Business Insider points out.

Chinese regulators are not the only ones wary of the cryptocurrency boom.

Tuesday, the U.K.’s Financial Conduct Authority released a statement cautioning investors about the risks of ICO investors, Business Insider reports. These risks, according to the FCA, include the lack of regulation governing the cryptocurrency market, the volatility of cryptocurrencies, the potential for fraudulent ICOs, and the experimental nature of cryptocurrency projects.

“ICOs are very high-risk, speculative investments,” the FCA’s warning reads. “You should be conscious of the risks involved … and fully research the specific project if you are thinking about buying digital tokens. You should only invest in an ICO project if you are an experienced investor, confident in the quality of the ICO project itself (e.g., business plan, technology, people involved) and prepared to lose your entire stake.”

Also on Tuesday, Business Insider says, JP Morgan CEO Jamie Dimon predicted an imminent crash of what he sees as the Bitcoin bubble. His prediction, so far, has been self-fulfilling. Dimon said he “would fire any trader that transacted Bitcoin for being stupid” (Business Insider’s paraphrasing).

As of 5:15 p.m. EST, Bitcoin’s value has fallen six percent on Tuesday’s news.

Business Insider notes that early this month, in an interview with Quartz, Yale economics professor and Nobel Prize winning author Robert Shiller, who predicted the crash of the housing and technology markets in his 2000 book “Irrational Exuberance,” called Bitcoin the best example in today’s market of a speculative bubble.

A “speculative bubble” occurs when unrealistic expectations amongst investors of an asset’s future performance drive the market value of that asset beyond any real gains it is capable of accruing.

In the aforementioned book, Shiller argues that the tech bubble formed because “a fundamental deep angst of our digitization and computers” compelled investors to seek a false sense of understanding and comfort by gobbling up tech stocks.

“Somehow Bitcoin…gives a [similar] sense of empowerment: I understand what’s happening! I can speculate and I can be rich from understanding this! That kind of is a solution to the fundamental angst,” Shiller told Quartz.

There is no question that investors have been exuberant about cryptocurrencies this year. ICOs have raised over $2 billion in 2017. The question is whether the exuberance is irrational. As a number of financial experts answer that question in the affirmative, once-exuberant cryptocurrency backers are growing skittish.

Featured image via Wikimedia Commons

Centene to acquire Fidelis Care for $3.75 billion

Centene, the United States’ largest Medicaid managed care provider, announced Tuesday that it has reached a “definitive agreement” to acquire Fidelis care for $3.75 billion, USA Today reports. 

The deal is scheduled to close in early 2018. It awaits the approval of various New York regulators, who will, among other things, evaluate it for compliance with the NY Not-for-Profit Corporation Law.

With the acquisition, Centene expects to generate $60 billion in annual revenue in 2018 and $100 million in savings by 2019. The firm reported $40.6 billion in annual revenue in 2016. Based in St. Louis, the company ranks among the largest publicly held companies in Missouri in terms of revenue.

Centene hopes to maintain a debt-to-capital ratio of 40 percent in the 18 months following the acquisition.

Managed care providers like Centene and Fidelis Care function as intermediaries between federal and state governments—which fund Medicaid programs—and Medicaid beneficiaries. The State pays such companies a premium in exchange for providing the services to which a beneficiary is entitled. USA Today describes managed care providers as the “private market option for Medicaid recipients.”

Fidelis works with 70,000 health care providers to provide health insurance plans to 1.6 million New York residents. The company brought in $4.8 billion in revenue in the first six months of 2017, according to Centene’s announcement.

Centene serves more than 12.2 million members in 28 states, but prior to the Fidelis acquisition has no presence in New York state. The deal will give Centene a leadership position in that state’s managed care market, the second-largest such market in the nation, according to Centene’s statement. The company is already the leading Managed Care Organization (MCO) in the other three largest MCO markets in the country: California, Florida and Texas.

Centene partners with healthcare providers at the state level to offer care tailored toward the needs of a given community.

“We believe our over 30 years of experience, our local approach to the provision of healthcare, and our expertise and capabilities in caring for underserved populations will support the next generation of leadership in government programs in New York State,” said Michael F. Neidorff, chairman, president and CEO of Centene. “We look forward to partnering with the state of New York’s healthcare professionals as we continue to deliver on our mission of transforming the health of the community, one person at a time.”

Fidelis shares Centene’s emphasis on local involvement and affordable care for as many people as possible. The former company’s website says: “From the beginning, Fidelis Care has worked to be part of the social fabric of local communities, impacting people’s lives with one of the most basic human rights – access to quality, affordable health coverage and care.”

“Centene’s and Fidelis Care’s missions are fully aligned in terms of promoting health through high quality, accessible care and services for all and advocating for health policy that accords true dignity and respect for all people, especially the underserved,” says Neidorff.

Fidelis Care CEO Patrick J. Frawley says his company’s “mission and values” are its “foundation,” and that Centene shares those values.

According to a CBSNews report, The Archdiocese of New York, a key Fidelis backer, said the “uncertain regulatory environment” in the U.S. in part motivated the sale. Washington’s sluggishness in replacing the Affordable Care Act has been widely publicized. 

CBS further notes that the Archdiocese plans to use proceeds from the sale to establish a healthcare foundation that will “operate in conformity with Catholic values.”

Founded in Milwaukee in 1984, Centene has been publicly traded since December 2001. Its market capitalization is $14.2 billion.

As of 2:34 EST Monday, the company’s shares have risen 7.2 percent on news of the Fidelis acquisition.

Featured image via Pixabay

Harvey and Irma combined could prove more expensive than Katrina

Moody’s Analytics estimates that Irma will cost the U.S. economy between $64 billion and $92 billion, CNN reports. Insured losses resulting from the storm will range between $20 billion and $40 billion, the firm said.

Moody’s estimated Harvey-related costs between $86 billion and $108 billion, CNBC notes.

Harvey and Irma will likely cost a combined $150 billion to $200 billion, Moody’s chief economist Mark Zandi says, per CNN.

Hurricane Katrina cost the U.S. about $160 billion (adjusted for inflation) when that storm hit in 2005. It was the most expensive natural disaster in U.S. history. Irma’s and Harvey’s combined economic damage will likely exceed the Katrina figure.

Irma has crippled Florida’s tourism industry, turning much of the state into the kind of water park nobody wants to see. Miami and Tampa saw four feet of storm surge, and three to five feet of storm surge, along with a foot of rain, inundated Jacksonville. The extent of the damage to business operations remains largely unknown but is presumably considerable.

Meanwhile, oil refinery operations in Texas continue to reel in the wake of Harvey. About 13 percent of the United States’ refinery capacity remains offline in Texas, according to CNN.

Last Thursday, the federal government said joblessness claims rose by 62,000, to 298,000, in the days following Harvey, CNBC notes.

The two storms together could cost the U.S. between $20 billion and $30 billion in economic output, Moody’s said per CNBC. The firm has dropped its third-quarter forecast of the nation’s GDP growth by half a percentage point, to 2.5 percent.

Zandi notes that the recovery of the nation’s economy will depend on the speed with which Florida and Texas can revive their tourism and oil industries, respectively, but says he expects the rebuilding effort to provide an economic boost that will put the U.S. economy back on track by the year’s end.

“The longer-term economic impact of the storms should be nil,” said Zandi per CNN.

William Dudley, the president of the New York Federal Reserve, echoed Zandi’s analysis. While natural disasters such as Irma and Harvey disrupt industry, create scarcity and raise prices in the short-term, the rebuilding effort boosts the economy, he said per CNBC.

“The long-run effect of these disasters unfortunately is it actually lifts economic activity because you have to rebuild all the things that have been damaged by the storms,” Dudley said in a live interview with CNBC.

He added: “I would expect that by the time we get to the end of the year and early 2018, the transitory negative effects of this storm I think will be over and we actually will start to see some of the benefits of the rebuilding efforts in terms of boosting the economy.”

Recovery efforts following a natural disaster create jobs, compel the government to increase infrastructure spending, and bring other economic stimuli.

For instance, Congress and President Trump agreed last week to raise the debt limit for three months to facilitate relief efforts in the wake of the storms, and the House approved $7.85 billion aid package for Harvey relief last Tuesday, the New York Post reports.

According to Reuters, Vice President Mike Pence said Sunday that the government would use all of its resources to aid Irma victims.

While the storms’ long-term impact on the economy at large may be negligible or even positive, their financial impact on a small scale can, of course, be devastating. Irma and Harvey have destroyed homes, businesses, valuables and other crucial assets.

“Think of the wealth destruction created by these hurricanes,” said Dan North, chief economist for Euler Hermes, North America, per CNBC.

In discussing Irma relief, President Trump was quick to point out that human considerations outweigh economic ones. “Right now, we are worried about lives, not cost,” he said, per Reuters.

Irma’s death toll in the U.S. rose to 12 Monday, ABC News reports. The Associated Press reported last Thursday that Harvey has killed 70. The hardship the storms have brought is incalculable; as one small example, Irma left 2 million Floridians without power. They regained power Tuesday morning.

Featured image via Wikimedia Commons

Markets rise as Irma weakens, North Korea anniversary passes without nuke test

Markets around the world are rising as Florida missed the worst of Irma this weekend, and as North Korea’s founding celebration, which took place Saturday, did not include a missile test, Reuters reports.

Irma hit the Florida keys Sunday as a Category 4 hurricane, then came into Miami, damaging several buildings and creating a storm surge that caused flooding in the downtown area of the city, The Wall Street Journal reports. The full extent of the damage remains unknown, as many of the hardest-hit areas are still inaccessible. The Journal points out that the National Weather Service expects severe conditions to persist in central and western Florida.

Irma continues to lose strength, The Washington Post notes. By Tuesday, experts expect it to weaken to a tropical depression. But, the storm remains capable of producing hurricane-force gusts, and will likely create a “life-threatening” storm surge, cautions the National Hurricane Center. A storm surge warning is in effect across much of the Atlantic and Gulf coasts.

The Post cites a National Weather Service tweet that says Irma’s storm surge produced record flooding in downtown Jacksonville Monday morning.

Nonetheless, Floridians caught something of a break over the weekend. On Friday, the Journal says, some models projected that the storm would hit Miami and east coast Florida head-on—instead, the storm turned toward the gulf coast.

“For now, we’re seeing a bit of a relief rally [in the market]. It does appear that the worst-case scenario for Florida has been evaded,” said Peter Cardillo, chief market economist at First Standard Financial in New York, per Reuters.

Meanwhile, North Korea tested no missiles over the weekend, though, according to the New York Times, leaders did hold a massive gala for the country’s nuclear scientists Saturday, in conjunction with national anniversary celebrations.

Last Sunday, North Korea successfully detonated its sixth nuclear bomb.

The MSCI AC World Equity Index, MIWD00000PUS, which tracks 2,400 stocks in 47 countries, according to Reuters, surged to a new high Monday morning, and as of 1:27 Eastern Monday. DXY, an index that compares the U.S. dollar to six other currencies, has jumped 33 cents (0.36 percent) since 11:59 p.m. Sunday. DXY is recovering after having hit a two-and-a-half-year low Friday.

Meanwhile, stock markets in Tokyo had their best session since June, according to Reuters. Relief about the situation in North Korea, as well as a weakening yen, spurred the surge.

In the U.S., shares are up one percent across Wall Street, Reuters says. As of 2:30 p.m. EST Monday, the DOW Jones Industrial Average has risen 260.19 points (1.19 percent) since it closed Friday. The S&P 500 has jumped 1.06 percent since Friday’s close, and now sits at 2487.67.

Demand for gold is falling, as investors are, according to Reuters, more inclined to assume risk given the relative stability of the U.S.’s relationship with North Korea and the relatively mild damage Irma wreaked upon Florida. As of 2:47 Eastern Monday, one troy ounce of gold is worth $1330.61, a decrease of $10.64 (0.8 percent).

Oil investments are falling out of favor as well, as the market frets over Irma’s and Harvey’s impacts on the supply of oil in the U.S., which Reuters says consumes more oil than any other nation.

“Brent crude oil futures for November delivery LCOc1 were down 66 cents [1.23 percent] at $53.12 a barrel, while benchmark U.S. West Texas Intermediate crude CLc1 declined by 33 cents [0.7 percent] to $47.15,” Reuters writes.

Jim Paulsen, chief investment strategist at the Leuthold Group in Minneapolis, said that a weaker dollar, along with lower interest rates, will provide more fuel to the U.S. economy in the near future.

“We are massively stimulating this economy that’s already doing pretty well,” he said. “That’s likely to accelerate an already-good economy even further the next 12 months.”

Featured image via Wikimedia Commons

Chinese authorities crackdown on cryptocurrency ICOs

Monday, the Chinese government banned the practice of creating and selling new cryptocurrencies, Reuters reports

With the rise of Blockchain technology, initial coin offerings (ICOs)—which give investors the opportunity to buy newly-created cryptocurrencies—have gained popularity. In total, Reuters says, ICOs have raised $2.32 billion since the inception of the cryptocurrency market; $2.16 billion of that amount has come in 2017.

In China this year, 65 ICOs have raised a combined 2.62 billion yuan ($394.6-million) and attracted 105,000 investors, according to Reuters.

The value of Ethereum, the cryptocurrency in which most ICOs are transacted, has plummeted on the news. On Sunday, one Ethereum token was worth $349.93. Late Monday, that figure had fallen 14.3 percent to $299.72. As of 1:33 p.m. Eastern Tuesday, Ethereum has recovered slightly; the USD-Ethereum exchange rate sits at 307.56 to one.

The Bitcoin-USD exchange rate has dropped 5.9 percent since midnight Monday morning on China’s news. Late Sunday night, one bitcoin was worth $4,632.46. As of 1:39 Eastern Tuesday, the value of a single bitcoin token is $4,359.07.

The market capitalization of the cryptocurrency industry as a whole dropped 11.66 percent Monday, from $165.095 billion to $145.833 billion. Since midnight Tuesday morning, though, the industry’s market cap has gained 1.7 percent. As of 1:55 p.m. Eastern, the industry is worth $148.358 billion.

“The large price falls can be attributed to panic amongst traders and profit-taking,” said Cryptocompare founder Charles Hayter, per Reuters.

Indeed, China’s announcement had many investors across the internet predicting doom and gloom. A participant in one chatroom set up for an upcoming ICO said “the music has stopped” for the cryptocurrency boom, Reuters reports.

“Sell all your bitcoins now,” another advised, again per Reuters.

The organizer of the ICO to which the chatroom was dedicated, which was meant to launch a new cryptocurrency called SelfSell, has suspended the project.

Regulators around the world are struggling to understand cryptocurrency investment and the risks associated with it, said Zennon Kapron, director of the Shanghai-based financial technology consultancy Kapronasia, per Reuters.

Prior to China’s announcement, the U.S. Securities and Exchange Commission, as well as similar agencies in Singapore and Canada, warned that regulations would likely be needed to control the cryptocurrency market.

The lack of regulation governing cryptocurrency and investment in it is unprecedented. Blockchain, the backbone of cryptocurrency transactions, functions without a centralized overseer.

The nature of investment in cryptocurrency is also unconventional. When one contributes to a fundraiser for a traditional company, one generally receives a share in the company and/or a security. ICO investors, Reuters notes, receive neither.

Therefore, Reuters points out, an investment in a cryptocurrency is little more than a bet that demand for that currency will exceed supply, driving up value. It is a risky bet, considering the volatility of cryptocurrencies.

With risks to investors so high, government regulators are purportedly taking strides to protect their citizens. Cryptocurrency expert and Blockchain proponent Oliver Bussman said, per Reuters, that the lack of private financial advice firms in China obligates the government to be especially vigilant in protecting the finances of its constituents.

Of course, many would argue that it is an investor’s own responsibility to protect him/herself.

Despite some predictions that China’s move spells the beginning of the end of the cryptocurrency boom, many experts believe the regulatory shutdown is but a temporary measure designed to give the country’s government time to develop a strategy by which to handle cryptocurrencies.

“China, in many ways, is no different than the U.S. or Singapore in saying, ok, we need to push back on these for now until we figure out how to deal with them,” Kapron said, per Reuters, adding that he expected regulators in China to eventually ease the ICO ban.

Bussman says, per Reuters, that cryptocurrency technology is too revolutionary, too integral to the future of global economics, to be shutdown. Cryptocurrency, he says, has already worked itself into the fabric of modern investment.

“The initial coin offering is a new business model leveraging blockchain technology and it will remain. This is not the end of the ICO – absolutely not,” he said.

Featured Image via Flickr/BTC Keychain

U.S. Labor Department releases August 2017 employment data

Friday, the U.S. Labor Department released hiring and unemployment data for August, The New York Times reports. Employers created 156,000 jobs last month—less than analysts expected.

Employers added more than 200,000 in June and July (the Department revised each of those figures downward by 41,000 in this most recent report). August’s figure marks a sequential decrease of 22%. Analysts anticipated a dip, but not one so pronounced. August job-creation figures have come in below analyst expectations in four of the last five years.

Still, job creation rose 50 percent year-over-year last month.

The unemployment rate saw a marginal sequential increase, up to 4.4 percent in August from 4.3 percent in July. Joblessness continues to hover around a 16-year low. The so-called participation rate, which reflects the percentage of able workers who are either working or looking for work, came in at 62.9 percent. It has remained more or less static over the past 12 months.

Average hourly wages rose just 0.1 percent, coming in below analyst expectations. Wages generally rise with hiring rates, but the data has gone against that trend in recent years.

As wages rise, theTimes notes, the Federal Reserve raises the federal funds rate—that is, the interest rate at which banks lend money to one another—so as to guard against inflation. But the flatness of hourly wages means inflation is minimal.

“There’s no sign of inflation, which keeps the Federal Reserve on hold in terms of interest-rate hikes, and it suggests stocks should keep doing well,” Torsten Slok, chief international economist at Deutsche Bank, said, per the Times.

Stocks are up slightly today. The DOW Jones Industrial Average is up 0.18 percent, and the Nasdaq Composite is up 0.10 percent.

There is a 30 percent chance the Federal Reserve will raise the federal funds rate when it meets in December. The Fed will also meet later this month, but will not modify the interest rate.

The Federal Reserve is watching whether workers who exited the workforce during the latest recession (which took place from January 2008 through May 2009) are re-entering now. In 2010, ten percent of Americans were unemployed. That figure has dropped by more than 50 percent as of today.

The hiring and unemployment report comes on the heels of the Department of Commerce’s publication Wednesday of national economic data for the second quarter of the year. The Department reported 3.0 percent GDP growth, up from 1.2 percent in quarter one.

Last recession hit the manufacturing sphere particularly hard. Two million jobs (just under 15 percent of the industry’s workforce) vanished. Since January 2010, though, have of those jobs have come back.

The growth is accelerating. Over the first seven months of 2017, the Times notes, factories hired 101,000 workers. In August, 36,000 more employees came on board.

Mack Truck is hiring in at its assembly plant in Pennsylvania’s Lehigh Valley, the Times notes. in illustration of the rebound of the manufacturing sector. Since 1905, Mack has built every truck it sells in North America at the Lehigh Valley plant.

In 2016, Mack lost nearly a third of its workers at the plant: the facility employed 1,875 workers at the end of 2015 and 1,287 after 2016.

Today, 1,800 people take a paycheck home from the plant, which is currently offering 26 jobs.

Because the failure of the housing market largely spurred the recession, the construction industry took arguably the biggest hit. At the beginning of 2008, 7.49 million people held construction jobs in America. The recession slashed that figure by almost 25 percent, and the industry continued to decline in the recession’s wake. At the end of January 2011, employment across the sector hit a ten-year low. 5.45 million people held construction jobs—37 percent less than of at the end of 2007.

Today, the industry employs 6.9 million people—just under 27 percent more than on March 1, 2011. It has added 101,000 jobs in 2017, including 28,000 in August.

Featured Image via Pixabay

Best Buy shares plummet despite strong earnings report

Best Buy’s quarter two earnings report, released Tuesday, shattered analyst expectations, Bloomberg reports. But, the company’s stock has plummeted on CEO Hubert Joly’s warning that the sales growth may not be sustainable.

Joly cautioned on the earnings call, per Bloomberg, that investors should not expect comparable sales growth to continue at its second-quarter rate.

As of 12 pm ET Tuesday, Best Buy shares are down 11 percent since the market closed Monday.

For quarter two, the company reported comparable sales growth of 5.4 percent, more than twice analysts’ expectations of 2.1 percent. Quarter two marks the chain’s best comparable sales growth since quarter four of fiscal 2010, Bloomberg reports.

Non-GAAP diluted earnings per share jumped from $0.57 to $0.69 year over year, an increase of more than 21 percent. Sales revenue rose almost five percent year-over-year, from $8.53 billion to $8.94 billion, and came in 3.2 percent above analysts’ expectations of $8.66 billion.

Despite Joly’s warning, Best Buy has revised its full-year comparable sales growth target from 4.5 percent to 5.5 pecent and raised Non-GAAP diluted EPS targets to $0.80/share from $0.75/share (an increase of more than 6.5 percent).

CFO Corie Barry expects “continued positive industry and consumer momentum,” she said in a statement, per Bloomberg, adding that product launches throughout the fall and the holiday season should have a positive impact on Best Buy’s performance.

Still, Barry offers a word of caution regarding the future—particularly the holiday boom, during which discounts and other promotions, Bloomberg points out, cut into the bottom line.

“You can’t always carry trends forward into the fourth quarter,” she said on the call, per Bloomberg. “…there are still a lot of unknowns.”

Best Buy’s success this summer comes as a number of hot new tech products hit the shelves. Nintendo’s new gaming platform, the Switch, and Samsung’s new phone, the Note 8, presumably played a role in boosting Best Buy’s sales numbers, Bloomberg notes.

Sales of smart home devices like the Google Home and Amazon’s Alexa increased as well, as Best Buy made an effort to showcase such devices. Sales of “wearables” like the Apple Watch also climbed.

According to the earnings report, though, pricing pressure in the mobile phone market drove down margins on products like the Note 8, and wearables are inherently low-margin products. A decline in sales of tablets, which are high-margin items, further limited profits.

Still, gross profit increased 4.4 percent, from $2.06 billion to $2.15 billion, while gross profit percentage (i.e. the percentage of revenue that becomes profit) remained flat.

Best Buy’s online revenue increased 31.2 percent “on a comparable basis,” according to the earnings release, while online sales accounted for 13.2 percent of total domestic revenue, an increase from 10.6 percent a year ago.

The company’s online revenue was higher than it has ever been, except during a holiday quarter, Bloomberg reports.

Still, experts doubt whether Best Buy can continue to compete with Amazon, which, according to a consumer survey by Gordon Haskett analyst Chuck Grom (cited by Bloomberg), now controls more than half of online sales across 11 key categories, including electronics and small appliances.

“They are going to get perfect quarters like this every now and again,” Brandon Fletcher, an analyst at Sanford C. Bernstein & Co., said of Best Buy, per Bloomberg.

The company “will continue to face waves of growth and decline,” Fletcher added, “but its base products — printer ink, headphones, etc. — are not related to product launches and those sales are inexorably moving to Amazon and Wal-Mart online.”

Best Buy has succeeded in the stock market despite increasing pressure on the eCommerce front. At Monday’s close, shares had increased more than 60 percent in the past year.

But the company’s own management has asked investors to temper their enthusiasm, and investors are obliging.

Featured Image via Wikimedia Commons

Starbucks stock falls, but one analyst predicts recovery

Since June 2, Starbucks stock has fallen more than 16 percent. Shares dipped just over nine percent (to $54.00/share) in 24 hours after the company released its most recent quarterly earnings report on July 27.

Investors are losing confidence in the iconic coffee brand due to declining growth rates, Daniel Schönberger of SeekingAlpha writes. Though Starbucks reported an 8 percent jump in revenue and a 12 percent increase in earnings per share last quarter, revenue growth has been falling since the first quarter of 2016, and EPS growth has declined from 37 percent in quarter four of 2013.

Still, Schönberger notes that most companies would love to post growth numbers comparable to Starbucks’, and points to a number of promising indicators for the company’s future.

The growth rate of the chain’s comparable sales increased over the most recent quarter. The comparable sales metric compares sales performance at a given store over some period of time. According to Schönberger, the figure is important from a sustainability perspective, as it is cheaper for a company to grow sales at existing locations than to open new stores. In the most recent quarter, Starbucks reported a 5 percent increase in comparable sales, up from 3 percent in each of the two prior quarters.

Still, in the long view, Starbucks’ comparable sales growth is slowing. In quarter four of 2011, comparable sales grew 10 percent. Until 2014, the company consistently reported comparable sales growth in excess of 5 percent.

Through the latter half of 2013, traffic growth accounted for the lion’s share of comparable sales growth. In the fourth quarter of that year, traffic growth began to decline, and increasing margins of individual sales (“ticket growth”) accounted for most of Starbucks’ comparable sales growth. Traffic has remained flat or declined in each of the last five quarters.

To maintain its dominance in the coffee sphere, Starbucks relies heavily on its brand image, Schönberger notes, citing a 2016 Interbrand report that ranks the Starbucks brand as the 64th most valuable worldwide, worth almost $7.5 billion. In 2016, Interbrand says, Starbucks’ brand appreciated 20 percent.

In a coffee sector in which competition is fierce, barrier to entry is low (i.e., it is easy to open a coffee shop), and customers can shift their loyalties with ease, the strength of Starbucks brand, Schönberger says, compels customers to tolerate long lines and high prices to obtain the familiar, quality product Starbucks offers.

Starbucks continues to expand in the U.S. The company opened 244 new stores on American soil last quarter and has opened 1,002 in the past 12 months. Schönberger argues, though, that the chain’s real potential for growth lies in international markets like India, Brazil, and Japan.

In its most recent earnings call, the company said year-over-year revenue in “China/Asia Pacific increased 9 percent while operating income jumped 22 percent. The company is particularly optimistic about its burgeoning presence in China.

“Starbucks’ opportunity for growth in China is unparalleled…” said Johnson.

There are approximately 2,600 Starbucks stores spread across 127 cities throughout China, Schönberger says. Starbucks’ growth in China mirrors its early growth in the U.S. Comparable sales growth is trending upward on the strength of increasing traffic. Starbucks intends to open 500 stores a year in China, CEO Kevin Johnson said in the earnings call.

Of course, there are risks associated with Starbucks’ expansion into China. Should tension between the U.S. and China continue to escalate, exchange rates may become volatile, Schönberger points out. Moreover, Chinese authorities could impose sanctions, even bans, on American businesses.

As of 2:08 Eastern Monday, Starbucks shares are trading at $54.25 apiece. The stock’s 52-week low is $50.84. Schönberger recommends that investors capitalize on the low share prices by picking up stakes in the coffee giant.

Featured image via Wikimedia Commons

McDonald’s will serve antibiotic-free chicken worldwide

McDonald’s announced yesterday, Aug. 23, that it would begin the process of removing human antibiotics in their chickens worldwide starting in 2018. Currently, McDonald’s only sells antibiotic-free chicken in the America’s. The announcement will bring the fast-food giant into a global effort to “battle dangerous superbugs,” according to Reuters.

The company’s target is antibiotics that are defined by the World Health Organization (WHO) as “highest priority critically important antimicrobials” (HPCIAs) to human medicine. Reuters points out that the plan to phase out antibiotics is still “not as strict as the company’s policy for the United States.” In the US, chicken suppliers have been providing McDonald’s with chickens “raised without antibiotics deemed important to human health” for over a year.

This move will surely have health activists everywhere cheering, as they have been working to get Big Food to stop using human antibiotics in meat for years. Grub Street reminds us of activists’ efforts, citing their “staging a shareholder’s revolt against McDonald’s and publicly shaming In-N-Out.”

Although their plans will roll out in 2018, some suppliers will have up to January 2027 to comply with the new standard.

With the New Year, chickens in Brazil, Canada, Japan, South Korea, the United States and Europe will all be raised without HPCIAs. The only exception will be Europe, where the company will use Colistin, “a last resort antibiotic,” when necessary.

Suppliers in Australia and Russia will stop using HPCIAs by the end of 2019. European suppliers will also be required to stop the use of Colistin at this time.

The rest of the markets will follow, complying with the new rules by January 2027.

Per Reuters, McDonald’s told a “ group of consumer and environmental organizations on Aug. 17 that 74 percent of its global chicken sales will conform to this policy as of January 2018.”

Along with the production of antibiotic-free chicken, McDonald’s hopes to propel similar plans forward for antibiotic-free beef. As part of yesterday’s announcement, the company said they are “working on” further plans to get rid of human antibiotics for beef, pork, dairy cows, and egg-laying hens.

Markets lurch as Trump talks and NEC director Gary Cohn considers leaving

The euro has been weakened against the dollar since the release of the minutes of the European Central Bank’s last meeting. But the dollar is having its own problems. The dollar has fallen since the Federal Reserve released the minutes of its last meeting in July, during which policymakers expressed concern about weak U.S. dollar inflation.

The recent attack in Barcelona compounded matters for the dollar, as did certain remarks made by President Trump regarding the recent violent white-supremacist rallies in Virginia. In the fallout from this drama, Trump disbanded two advisory councils of prominent businessmen, a move which some people think violates his promise to work alongside industry leaders.

To make matters worse for the dollar, recent speculation rumors that Gary Cohn, current director of the National Economic Counsel, is considering leaving his post. Cohn was one of many business leaders to denounce Trump’s remarks on the violence in Virginia.

Aside from his duties as director of the NEC, Cohn also acts as a particular advisor of President Trump’s on tax reform and spending, as does Treasury Secretary Steve Mnuchin. Cohn previously served as an executive at Goldman Sachs.

Cohn seems to play a key role in keeping the U.S. economy and currency stable. That’s why the rumors circulating about his possible imminent departure caused the markets to lurch. Traders rushed to abandon the dollar for more secure currencies.

An anonymous White House adviser maintains that Cohn will remain and the status quo will not be broken. This news has calmed the markets somewhat.

On Wednesday, the dollar fell O.55 percent to the yen and 0.4 percent to the Swiss franc. The dollar has since gone up incrementally.

On the whole, most analysts don’t seem to see much immediate cause for worry about the U.S. dollar.

Featured Image via Pixabay

Netflix increasing focus on original content, analysts say

Streaming video service Netflix has $15.7 billion worth of “streaming content obligations,” CNN reports. It plans to pay $6 billion toward those obligations this year.

The “streaming content obligations” figure is up more than $3 billion since quarter two 2016, according to CNBC.

Several analysts attribute the increase to an intensified focus by Netflix on the creation of original, proprietary content.

“The company is actually trying to manage down the amount of content that it’s licensing from other people,” Canaccord Genuity analyst Michael Graham told CNBC. “The plan there really is to draw subscribers to the service with content that Netflix builds and produces on its own, and that Netflix owns and doesn’t have to pay royalties on. So what that does is it enables margins to expand over time.”

In a report cited by CNN, John Janedis, an analyst with Jefferies, agreed that the company is “aggressively shifting to owned original content.”

The increased emphasis on original content comes as traditional media operations increasingly become competitors rather than allies.

As cable revenues continue to fall, companies like Disney are making their own inroads into the streaming market and cutting ties with Netflix.

When Disney announced plans to start its own streaming service by 2019, it also said it would pull Disney and Pixar films from Netflix by the end of 2019. The company was noncommittal as to whether it would continue to license Marvel and LucasFilm properties to Netflix.

Netflix said in a statement that, despite the termination of its partnership with Disney, “U.S. Netflix members will have access to Disney films on the service through the end of 2019, including all new films that are shown theatrically through the end of 2018.”

A previous agreement obligates Disney to allow Netflix to host Disney, Pixar, and Marvel films through the end of 2019.

The end of the Netflix-Disney partnership will not affect original Netflix shows based on Marvel characters, such as Daredevil, Jessica Jones, Luke Cage, Iron Fist, nor will Netflix halt its production efforts for the upcoming Marvel-based offerings The Defenders and The Punisher.

Following Disney’s announcement, Netflix struck back, poaching 15-year ABC veteran Shonda Rhimes, creator of such hits as Grey’s Anatomy and Scandal. Those shows will stay with Disney/ABC, but Rhimes will begin creating original content for Netflix.

Many suspect that much of Netflix’s near-$16 billion original content budget will contribute toward the streaming giant’s continued pursuit of talent employed by major traditional studios like Disney.

“We’re witnessing an all-out war,” Eric Schiffer, chief executive of Patriarch Organization, told The LA Times. “The studios are seeing Netflix and Amazon go out for their talent, and out for [their] scalps.”

“Studios haven’t felt this kind of hellfire in decades and it’s not going away,” he added.

Netflix is, however, fighting an expensive war. The terms of the deal with Rhimes were not disclosed, but it stands to reason that one of television’s top writers comes at a price. Last quarter, Netflix reported $3.4 billion in “non-current content liabilities” (read: long-term debt); that figure is up more than 15% from $2.9 billion at the end of 2016.

Despite its debt, though, Netflix continues to add subscribers and generate revenue. In quarter two, the company reported $2.8 billion in revenue—that’s a 35% jump year-over-year. Moreover, the service reported 4.3 million (over 9%) more domestic subscribers in quarter two 2017 than it did a year ago. In quarter three, CNN says, the company’s sales are expected to grow 25%, and earnings are expected to double.

In some markets, Netflix is raising its monthly subscription rates to fund its redoubled emphasis on original content. In late June, the streaming behemoth raised prices in Australia; just last week, it raised prices for Canadian users. Some anticipate that US users will see similar price increases in the coming months. According to CNN, Netflix said in its quarter two report that it “expect[s] that from time to time the prices of our membership plans in each country may change.”

Netflix stock has soared more than 40% this year, according to CNN. But, shares have dipped more than 6.5% since Disney announced intentions to pull Disney and Pixar movies last week.

Still, with a market cap in excess of $77 billion, Netflix is, according to CNN, worth more than Fox, CBS, and Viacom, and just slightly less valuable than Time Warner, which owns CNN, HBO, etc.

The streaming pioneer has proven its ability to compete with the giants of traditional media. As an increasing number of those giants make their own inroads into the streaming sector and deprive Netflix of licensing rights, the competition is bound to intensify.

Featured Image via Flickr/Shardayyy

BitCoin’s value surges despite looming scalability challenges

As of 2:18 Eastern Monday, a single bitcoin is worth $4,282—an all time high for the cryptocurrency, invented in 2008. The bitcoin-USD exchange has soared more than 200% this year, as investors in Korea and Japan increasingly seek to buy the cryptocurrency—some such investors are willing to pay premiums of up to 30%—and May’s New York Agreement helps it to accommodate expansion.

A wide array of investors have jumped on the bandwagon, some more enthusiastically than others. “Whether or not you believe in the merit of investing in cryptocurrencies…real dollars are at work here and warrant watching,” Goldman Sachs analysts wrote in a note to clients, per Bloomberg.

Joshua M. Brown, a financial advisor at Ritholtz Wealth Management, is among those who, despite their skepticism, cannot resist BitCoin’s upside. When the cryptocurrency first became part of investors’ vernacular seven years ago, Brown observed in a blog post in mid-July describing his first-ever BitCoin purchase, it was subject to all the volatility that accompanies a “new and unproven” investment opportunity.

Now, though, the cryptocurrency has been hanging around in the public eye for quite a while, and recent developments such as the New York Agreement may lead to stabilization.

As a limited resource as well as a medium of exchange, Bitcoin has properties of a commodity as well as a currency, Goldman Sachs’ note to clients points out. The United States IRS does not recognize Bitcoin as legal tender but, rather, treats it as property for tax purposes.

BitCoin’s value is not supported by some inherently valuable asset like gold or silver, but the lack of such a standard is par for today’s currencies, according to Tim Courtney, CIO at Exencial Wealth Advisors.

“The first thing to understand is that, just like every other currency, there is no asset backing digital and cryptocurrencies,” Courtney told TheStreet. “In the past, some currencies were backed by gold or silver, but that’s no longer the case.”

Without any sort of backing, Bitcoin derives all of its value from supply and demand. BitCoins, in other words, are only worth what someone is willing to pay for them.

“When you see returns on digital currencies moving up, that means demand for them has outnumbered the sellers out there,” Courtney explained to TheStreet.

BitCoin will face a minefield of obstacles as it scales up to satisfy increasing demand. One such challenge could be unprecedented volatility. In late June, Ethereum, a cryptocurrency similar to Bitcoin, dropped from $300 dollars to $0.10 on a single, multi-million-dollar exchange, CNBC reports.

Courtney observes, per TheStreet, that there was no way to reverse the trades, as there would have been had the crash involved “established assets.”

“…there is no security to your [cryptocurrency] trades if something unexpected happens,” Courtney told TheStreet.

‘”What we’ve been doing in the stock market to prevent flash crashes, they’re nowhere near that in the cryptocurrency market,” adds Joe Saluzzi, co-founder of Themis Trading, per CNBC.

Bitcoin also runs the risk of devaluing itself as it expands, Courtney says. He cites the “constrained supply” of Bitcoin as an integral part of its value—basic microeconomics principles hold that if a commodity is in high demand but short supply, its price will rise.

Yet, as Bitcoin expands to serve increasing demand, it will become less and less scarce, and may, therefore, lose much of its value. In other words, like any other currency that loses its scarcity, Bitcoin will be subject to inflation.

BitCoin has long been vulnerable to cyberattacks. As its popularity grows, it will increasingly become a target for hackers. Exchange services BTC-e and Bitfinex both reported being hacked last week, according to CNBC.

The security and anonymity of BitCoin make it a suitable platform through which to launder money, demand ransoms, and carry out other nefarious transactions. All transactions carried out on contraband distribution websites like the AlphaBay and Hamsa, both of which authorities shut down in July, are conducted via BitCoin. Late last month, alleged BTC-e operator Alex Vinnik was arrested on suspicion of having laundered more than $4 billion his clients generated through a variety of criminal enterprises.

“It’s hard to imagine the IRS, Treasury etc allowing anonymous transactions without any reporting becoming a global standard for US persons,” Brown wrote in his blog post.

Still, Brown says, he is not willing to miss out on the potential upside of an investment in BitCoin. “I’m old enough to realize that just because I don’t see a use for something, that doesn’t mean I won’t be proven wrong by others who do,” he writes.

Judging by the spikes in the cryptocurrency’s value—it seems to hit a new high every day, of late—plenty of other investors are indeed anxious to prove Brown wrong.

Featured Image via Flickr/Zach Copley

SoftBank Looks to Make Inroads Into US Ride-Hailing Sector

SoftBank CEO Masayoshi Son has indicated intentions to make inroads into the US ride-hailing market with a multi-billion dollar investment in Uber or Lyft, CNN’s Sherisse Pham reports.

At a news conference Monday, Son said his company was “definitely interested” in pursuing a partnership with one of the two ride-hailing operations. Son expects a boom in the ride-hailing industry to accompany the rise of self-driving cars.

“…when that stage comes [i.e. when autonomous cars sponsored by ride-hailing companies hit the streets],” said Son, “this ride share business becomes even more important.”

SoftBank already holds sizable stakes in a host of Asian ride-hailing companies, including China’s Didi Chuxing, India’s Ola, Brazil’s 99, and Singapore’s Grab. According to The Wall Street Journal, Son’s interest in Uber may indicate that he believes the US startup will combine its operations with Ola and Grab

Uber has set a precedent of willingness to partner with local companies in international markets. After a heated competition between Uber and Didi Chuxing ended in a stalemate, Uber agreed to sell its Chinese business to Didi in exchange for a 20% stake in the Chinese company. In July, Uber announced plans to strike a similar deal with Russia’s YandexTaxi.

On July 25, the Wall Street Journal reported that SoftBank was considering investment in Uber, but said negotiations between the two companies were “preliminary and one-sided.” A deal would likely be postponed until Uber appointed a new CEO in the wake of former chief Travis Kalanick’s resignation over sexual harassment allegations in June. The scandal also left the company without a chief operating officer, a general counsel, and an independent board chair, according to Bloomberg. On August 4, The Washington Post reported that Uber’s shortlist for the CEO position had been cut to three people.

The management vacancies, coupled with the increasing success of Lyft, are prompting many early Uber investors to jump ship. Sources told Bloomberg two such investors are negotiating to sell their stakes to larger investment firms.

With a market cap of $89.7 billion, SoftBank is among Japan’s most valuable companies. Its subsidiaries include Sprint, Yahoo! Japan, Myspace Japan, and myriad others.

In May, SoftBank, along with Saudi Arabia, Apple, and others, formed a $100 billion dollar tech fund, called the Vision Fund, that “will focus on investments of more than $100 million in technology businesses of the future,” according to a CNN report. It is unclear whether SoftBank’s investment in Uber or Lyft will be pulled from that fund.

Last Thursday, SoftBank contributed $250 million to Kabbage, a financial technology company based in Atlanta, GA. Kabbage, a next generation lending company, uses an online system to quickly evaluate a small business’s eligibility for a capital loan. According to the company’s website, the evaluation process analyzes business performance as well as credit score, and a customer can gain approval for a loan in less than 10 minutes. The website also says Kabbage has lent more than $3.5 billion dollars worth of funding to more than 100,000 businesses.

Kabbage licenses out its technology to traditional banks who wish to offer automated lending; the program is currently used by banks like Banco Santander SA (SAN.MC), ING Groep NV, and Scotiabank. SoftBank is the first Asian player outside of China to enter the automated lending space.

Son’s press conference on Monday coincided with the release of SoftBank’s quarterly earnings report, in which the company reported $4.33 billion worth of profit—a 50% year-over-year increase. The jump came after SoftBank included the Vision Fund as a reportable segment for the first time.

Profits were further boosted by the success of Sprint, in which SoftBank owns an 80% stake. The cellular service provider reported its first profit in more than three years Monday. SoftBank is considering a potential merger between Sprint and T-Mobile, or between Sprint and Charter Communications Incorporated.

SoftBank’s shares have risen just over 1% since Monday.

Featured Image via Flickr/Nobuyuki Hayashi

Generic Pharma Giant TEVA Reels

In its quarterly earnings call Thursday, Teva Pharmaceutical Industries, Ltd. dropped its projections of annual profit for the second time this year. Earnings per share is expected to range from $4.30 to $4.50, and dividends have fallen 75%, Bloomberg reports via Fortune.

For quarter two, Teva reported a 2% drop in profit despite a 12.86% year over year increase in revenue, as costs of sales rose 32.6%. The greater concern, though, is the $6.1 billion dollars worth of “loss contingencies” the company disclosed, which led to a net loss of almost $6 billion for the quarter.

The company’s stock has fallen 32.7% on the earnings report since the market closed Wednesday, bringing the total drop over the past 12 months to over 60%. According to Fortune, Teva’s debt ($35.1 billion) now exceeds the firm’s market value of $33.6 billion.

Much of the debt is the result of costs associated with Teva’s $40.5 billion acquisition of the generic division of U.S. drugmaker Allergan. The high-risk, high-reward deal, finalized in July 2015, made Teva the biggest generic drugmaker in the world (per Fortune), but came at a time when competition was driving down prices across the industry, cutting into bottom lines.

As part of the takeover agreement, Allergan received a 10% stake in Teva, which it was required to hold for a year. Today, Allergan is Teva’s largest shareholder. In its first-quarter earnings reports, Allergan estimated that its stake had depreciated by $1.98 billion. The holding period expired this week, and Allergan has said that it plans to sell off its shares within the next couple of months.

“All of us at Teva understand the frustration and disappointment of our shareholders in light of these results,” interim CEO Yitzhak Peterburg said on Thursday. “We will continue to take action to aggressively confront our challenges.”

Teva intends to offload a number of assets, including its global women’s health division and its European cancer and pain-treatment operations, by the end of the year. Peterburg said the company is also reviewing other “non-core” arms of its business, looking for ways to trim the fat.

“This review will ensure business is much more focused and efficient in the rapidly changing competitive environment,” he said.

Peterberg expects the asset sales to generate $2 billion, almost double the initial target for divestment-related proceeds.

Teva increased its cost reduction targets to $1.6 billion, from $1.5 billion in May. It plans to cut 7000 jobs; that figure is up 40% since the company announced 5000 job cuts following the Allergan deal.

While Teva is “on track” to fulfill its debt covenants, the company warned that it could fail to do so if the US dollar continues to weaken in the international currency market, or if asset sales do not generate enough revenue.

Teva has not had a permanent CEO since February, when Erez Vigodman, who had held the job for there years, stepped down. At that time, the company appointed Peterburg, then head of Teva’s board of directors, to fill the position on an interim basis.

Installing a permanent, long-term chief could go a long way toward righting Teva’s ship. The pharma giant has gone through 3 CEOs in 5 years.

“This [i.e. the search for a CEO] is a process we are not going to rush and we will not compromise on quality and on finding the best individual possible to lead Teva,” said chairman Sol Barer.

Given the current situation, the job is a hard one to sell. It is equally hard to sell Teva stock, which is now at a 5-year low. Still, the low prices may attract certain investors working under a mean reversion strategy.

Dow Soars to Record High on Apple’s Success; Nasdaq and S&P 500 Stagnate

The Dow Jones rose 0.45% Wednesday, closing at 22,014.51, crossing 22,000 for the first time in history, Reuters reports. It dropped slightly in after hours trading, but as of 11 am Thursday, it has gained another 0.06%, bringing it to 22,029.11.

The Dow’s rise is in large part due to the success of tech giant Apple, which announced its earnings for the third quarter of its fiscal year (ended July 1) Tuesday. The company exceeded analysts’ expectations with 7% year-over-year revenue growth and a 17% year-over-year rise in earnings per share. iPhone sales rose 2% year over year and generated 3% more revenue than they did a year ago. The company’s services-based revenue hit a record quarterly high of $7.2 billion, a 3% increase from last quarter and a 22% jump year-over-year.

Apple stock spiked almost 7% on the news in after-hours trading Tuesday, closing at $149.33/share Tuesday afternoon and opening at $159.51 Wednesday morning. Since Wednesday, the stock has dropped 2.1% as of 11:30 am Eastern Thursday. It is priced at $156.15/share.

Some investors would like to see Apple spend more money to improve its own business operations.

“Apple, at the heart of it, has a lot of consumer exposure, and the consumer is in great shape. But we would like to see some capex [capital expenditure]“ said Mike Baele, managing director at U.S. Bank Private Client Wealth Management in Portland, Oregon, per Reuters.

The Dow has risen 11% this year. It cracked 20,000 in late June and exceeded 21,000 on March 1, per Reuters.

The S&P 500 and the Nasdaq, which have seen success of their own this year—the Nasdaq composite has gained 16.9% since January 3; the S&P 500 is up 9.5% since the same date—saw little change. The former increased by 0.5%, while the latter remained flat.

The Nasdaq and the S&P 500 were hit by the losses of some heavy hitters in the tech sector: Microsoft fell 0.44% Wednesday; Facebook lost 0.33%.

Facebook and Microsoft are both performing well in 2017. The social media heavyweight has risen 46.8% since December 30, and the software giant is up 15.9% since the same date. Both have helped to make technology the leading S&P sector. The S&P’s information tech index has jumped 23% in 2017.

AutoNation, which belongs to Nasdaq as well as the S&P 500, has fallen 6% since releasing its quarter two earnings report, which revealed a 3% drop in year-over-year revenue, and a 1.9% fall in gross profit.

Cardinal Health, which, like AutoNation, is a member of both Nasdaq and S&P, has dropped 11.14% on its most recent earnings report. Though the company’s revenue increased 5% year-over-year, net earnings fell 18%, and earnings per share dropped 16%.

Still, of the 2/3 of S&P companies who have reported their second quarter earnings, 72% have beaten Wall Street expectations, Reuters says. On average, about 64% of companies per quarter “beat the street.”

The economy’s success, Reuters points out, comes despite gridlock in Washington, which is stalling the Trump Administration’s efforts to cut taxes and boost infrastructure spending. Many investors say the political situation has but secondary bearing on the market’s performance.

“The Trump agenda getting done or not is not the difference between positive or negative GDP,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Company in Milwaukee, Wisconsin, per Reuters. “I continue to believe the Trump potential tax changes are the icing on the cake of an already improving economy.”

The economy is indeed improving. GDP growth is bouncing back after a sluggish 2016, and company performance has been strong in the most recent quarter. The dips of Facebook and Microsoft seem to be but road bumps in a successful market.

US Commerce Department Releases US Economic Data for Q2 2017

Friday, the US Commerce Department published national economic data for the second quarter of 2017. After a sluggish 2016, the economy appears to be modulating toward a strong growth rate. Last year saw the slowest economic growth rates since the recession of the late 2000s, so analysts say the economy is not booming, just regaining equilibrium.

“The economy is moving along at a pace that’s unexciting but not worrisome. I wouldn’t want to emphasize that growth is accelerating based on the second quarter. The economy is plodding along at a slow and steady pace,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York (once again, per Bloomberg).

Real Gross Domestic Product grew 2.6% in quarter two, after rising just 1.4% in the first quarter, according to CNBC. Final sales to domestic purchasers increased 2.4%, as it did in quarter one.

Consumer spending, which accounts for 70% of the economy, jumped 2.8%, spurred by low prices and stock and home equity gains, according to Bloomberg. Real disposable income rose 3.2 percent; in the first quarter, it rose 2.8%. According to survey data collected by the University of Michigan, 51% of consumers have seen recent improvements in their finances—that’s the largest percentage since November 2000. Business investment in equipment jumped 8.2%, more than it has in almost two years. Bloomberg attributes that spike to business owners’ anticipation of increases in demand.

However, gross personal income increased just 118.9 billion this period, after it saw $217.6 billion worth of growth in quarter one. The Commerce Department’s report says the slow-down comes as a result of “decelerations in wages and salaries, in government social benefits, in nonfarm proprietors’ income, and in rental income,” and due to “downturns in personal interest income and in farm proprietors’ income. Moreover, the aforementioned survey from U of M revealed that 34% of Americans expect to advance financially in the coming year.”

Employment cost index rose by 0.5% after a 0.8% rise in the January-March quarter. Residential investment saw its largest drop since 2010, as builders struggle to “find available labor and lots,” Bloomberg says.

The Trump administration still has some work to do to meet its goal of 3% growth, and the economy will need to grow by 2.5% in the second half of the year if it is to achieve 2.2% median projection the Federal Reserve has put forth.

Continued economic growth could hinge upon the success or failure the president’s tax reform efforts. Bloomberg reports that “White House officials and congressional leaders have been meeting weekly to agree on a framework to rewrite the tax code.” Trump has said the revisions will benefit the middle class, theoretically freeing-up income to be recirculated in the economy.

“If a well-constructed tax reform deal is enacted this year or next, the economy may fire on all cylinders and accelerate closer to President Trump’s 3 percent goal, but for now, we are firmly entrenched at around 2 1/4 percent,” Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, said in a note, per Bloomberg.

The White House, for its part, is pleased with the progress. “From day 1 [President] Trump has been fighting to restore jobs, opportunity & prosperity to the U.S, & is already making a remarkable difference,” VP Mike Pence said in a tweet Friday.

“…our economy is growing, 850,000 jobs have been created & businesses are more optimistic than they’ve been in 20 years,” Pence added in a subsequent tweet, presumably referencing the increase in business investment in equipment.

The economy is rebounding, but not soaring ahead.

With Trump’s tax reform on the horizon, the coming months may reveal the effect the changing political climate will have on the economy long term.

Stocks Sink Across Tobacco Industry as FDA Announces Plan to Tighten Regulations

The FDA announced Friday that it will tighten regulations imposed upon the tobacco industry, with a view toward encouraging manufacturers to produce less addictive cigarettes, Lauren Thomas of CNBC reports.

“Envisioning a world where cigarettes would no longer create or sustain addiction, and where adults who still need or want nicotine could get it from alternative and less harmful sources, needs to be the cornerstone of our efforts – and we believe it’s vital that we pursue this common ground,” said FDA commissioner Scott Gotlieb.

The agency said it would unveil the outline for a new law enforcement policy “shortly,” according to Thomas.

Tobacco companies are reeling in the stock market following the announcement. As of 12:39 PM Eastern Friday, shares of Altria, which manufactures Parliament and Marlboro cigarettes through its subsidiary Philip Morris USA, have dropped 10.89 percent since the market opened. British American Tobacco, which produces Camel, Lucky Strike, and Newport, have fallen just under 10%. Phillip Morris International has taken a much milder dip of just under one percent.

Some experts say the regulations will compel Americans to stop smoking. “It’s hard to overstate what this could mean for the companies affected: non-addictive levels of nicotine would likely mean a lot fewer smokers and of those people who do still light up, smoking a lot less,” said Neil Wilson, a senior market analyst at ETX Capital in London, told Reuters.

Demand for tobacco products is already a fraction of what it once was, and it continues to decline. In a 2016 Gallup poll, just 19% of Americans said they had smoked a cigarette in the past week. In 1945, 41% of the population answered the same question in the affirmative. That number rose to 45% by 1955, but has trended downward since. Tobacco usage has dropped 50% since 1983, and 24% since 2006, according to the poll.

Naturally, with fewer Americans smoking, tobacco sales have plummeted. According to data cited in a 2014 Bloomberg report, in late 1970, approximately 140 packs of cigarettes were sold per capita annually in the US. By 2012, that figure had shrunk to just over 40.

Altria’s revenue fell almost 81% between 2005 and 2007 but has remained more or less constant since ( collected by macrotrends.net). Over the last five years, the company’s stock price has trended upward.

Many expect the tobacco industry to mount legal opposition to the regulations. Tobacco powers have had spats with the FDA before. In 2015, a group of companies, including Altria’s Philip Morris USA, sued the agency over its mandate regarding labeling of tobacco products. The suit claimed that the labeling regulation prevented companies from communicating openly and freely, thereby violating the companies’ first amendment rights.

However, Altria says on its website that it supports “thoughtful, science- and evidence-based regulation,” which will “help address societal concerns about tobacco products and promote and protect public health.” The site continues on to say the company “seek[s] to work constructively with the FDA as it establishes a comprehensive national regulatory framework for tobacco products.”

British American Tobacco has indicated that it anticipated the FDA’s actions and will cooperate with the new regulations.

“Our American subsidiary, Reynolds American Inc. and its operating companies are encouraged by FDA Commissioner Dr. Scott Gottlieb’s comments today recognizing tobacco harm reduction policies and the continuum of risk for tobacco products,” a British American Tobacco spokesperson said, per Reuters.

Some analysts believe that by forcing tobacco companies to create safer, less addictive products, the FDA may help said companies to recapture public demand.

“Overall, while the market is viewing today’s announcement as a ‘negative’ for cigarette manufacturers, we believe this could prove to be an opportunity over the long term for reduced risk products and, therefore, a positive for Altria/PM as they have a unique competitive advantage,” said Wells Fargo analyst Bonnie Herzog in a note to clients.

“[The FDA’s actions] are actually supportive of the future demand of e-cigarette products,” analyst Joseph Agnese told CNBC.

But, Agnes also notes that tightened regulations may facilitate a black market.