Yahoo provided some more clarity on its previously announced plan to pursue strategic alternatives this morning. Which is to say, the company issued a boilerplate statement about putting together a Strategic Review Committee and named the banks who will now be paid to make contact with the pool of maybe 15 groups on earth who could conceivably have an interest in acquiring the company.

Nice work if you can get it. A special shout-out to Goldman and JPMorgan. Both firms were on the team that was hired 3 years ago to try to find a tax loophole big enough for Yahoo to hide as much in $16b in taxes the company would owe if it sold Alibaba on the open market. After the subsequent plan failed to get a nod of approval from the IRS Yahoo was forced to apparently start from scratch. It’s a credit to GS and JPM that they could be paid both to help light a company on fire and snuff it out effectively as possible later.

Yahoo is firing 15% of the company (in small tranches every Wednesday, according to re/Code).

Today was supposed to be an update on the release February 2nd when Chairman Maynard Webb said “The Board also believes that exploring additional strategic alternatives, in parallel to the execution of the management plan, is in the best interest of our shareholders.”

Yahoo liked that phrasing so much they had both Maynard and CEO Marissa Mayer repeat it almost verbatim a couple more times today. There’s nothing new here beyond an updated roster of advisers. Unless Maynard and Mayer had the same writing teachers from 3rd grade through college I’m guessing their statements were written (cut and pasted) by a third party. There’s something chilling about a company issuing a form letter this lazy the same week they sack everyone tasked with pursuing fruitless vanity magazines for 3 years.

Tough situation. I wish the best for all.

 

Comments »

GoPro is so bad it’s now apparently impolite to discuss management candidly. Nick Woodman, proud legacy member of the SV CEO High School took home $284 million in 2014. He cashed out  in the IPO and took out more when he and his wife, Jill, exploited a loophole in the GoPro IPO terms to dump over $300 million in shares via a foundation to fund causes TBD.

90% of the shares sold in GoPro’s secondary offering came from insiders. They got $72.38 a share, about 9x higher than where the shares are 14 months later.

Woodman is the affable face of executive incompetence. If you aren’t going to be critical of him you should simply not do financial commentary. Martin Shkreli didn’t cost you any money but he’s an easy target. GoPro and Yahoo are investment death pits run by a Ty Webb and Regina George. Guess which exec is getting pounded today?

On Christmas Eve I did a piece on why CEO behavior matters. I focused on GoPro and Yahoo.

 

I’m not sure if the piece is rude. I’m certain it was correct. Yahoo and GoPro have dropped 18% and 50%, respectively since I recorded it. I work for you. I take it very personally but criticisms aren’t necessarily personal. It’s business. I think executives matter to your investments so I talk about them, good and bad.

Being CEO of a public company means answering to the public. That’s why they get the big money. If execs can’t take the heat they should take different jobs. I’m going to keep doing mine.

Comments »

Buyback-Lash(TM) is picking up steam as investors sell-off shares of companies with monster buyback programs. Apple, IBM, Chipotle, Gilead… the list is growing.

The story is also picking up steam. Perhaps inspired by the Weekend Buyback Primer I created with links to pieces on AutoNation, Apple, WholeFoods Markets, Macy’s and IBM) Fortune went through Apple’s hypothetical P&L on repurchased shares yesterday:

 

It’s a decent read but misses the main points. Allow me to elaborate:

Repurchased Shares Go to $0 Immediately

I went over exactly why in the nuanced piece “Wall Street Street Screwed You Again! Buyback Mailbag“. It’s a nice exercise to point out that Apple is down 21% on buybacks but it misses the point.

If shares move higher after a repurchase the company has no direct benefit. Apple doesn’t trade its shares. If AAPL were trading at $200 the company itself wouldn’t be able to flip stock for a profit. Unlike literally every other potential investor corporations can’t just flip shares in the open market. The stock is instead retired to reduce share count.

In part this offsets dilution from stock option programs. That means buybacks are a good pay to hide pay and help push EPS higher all things being equal. Most executive pay packages are based at least in part on earnings per share. Buying back stock is easier than coming up with new business ideas and can lead directly to an executive team getting paid more, regardless of what the stock itself does.

Buybacks Don’t Work

On their call last night Gilead announced it had spent an insane $10 billion repurchasing shares at an average cost of $95. As a result EPS in the fourth grew faster than net income! Ya! Everyone got a bigger chunk of the earnings pie! Gilead added another $12 billion to its $15 billion repurchase program last night. $27 billion and the company is openly accelerating buybacks right this second.

The problem isn’t that Gilead is down $10 on its investment. Gilead is down $10b but that’s not even the problem. The real issues are a) shares are going lower anyway b) that money might come in handy some day c) Gilead is competing for stock with its own investors even though Gilead has no real use for the stock.

That’s not returning cash to shareholders. It’s screwing them in the short term so your monster options package is less visible.

Yes, Gilead generates a ton of cash. So did IBM at one point. $75b in buybacks later IBM, a company once so powerful it was considered a monopoly, has missed every trend of the last decade. IBM shareholders are left with net profits of $0 since 2010.

 

Parade of Dunces

Financial media is like a game of telephone. Somehow has an insight then everyone passes it alone in some slightly different form. I’m not complaining or bragging about other folks picking up on this story without attribution. I expect that to happen. I just want to make sure they get it right. It’s important because investors should be insanely outraged right now and it’s not quite happening.

Among the inanity…

Chipotle spent 30 minutes detailing every margin-crushing hell that can befall a company on last night’s call. -36% comp sales, loyal customers abandoning them, promotions of unknown expense and higher costs in general. I was on the call. Shares held up fine right up until the CFO said this:

This was after the company guided to breakeven for Q1 and pulled guidance for the rest of the year because he openly has no idea how much the company will have to spend to buyback shares. How about settling the NoroVirus investigation before getting long CMG, guys? Because the stock really isn’t a buy as long as we’re synonymous with both bacterial and viral ways of contracting explosive diarrhea.

Comcast hiked buyback by $10 billion. Because the best way to fight cord cutting and ad drops is investing in your own stock.

Buybacks Need to Die Before Walmart Does

They never make sense. “Opportunistically buying back shares” is the 2016 version of Citi’s Chuck Prince blithely telling the New York Times that his bank was taking on more debt because “as long as the music is playing you’ve got to get up and dance“.

Citi still has risk to $0.

Walmart has $20b in repurchases in place. Target is buying its own stock. Amazon is not. Amazon is going into bookstores. Those are Trojan Horse distribution systems. Target and Walmart have a combined growth rate of 0%. Both chains get less than 5% of its sales from online. By Christmas Amazon will be killing them ecommerce and brick and mortar stores.

Walmart is spending under $1b developing its internet business this year. How much cash do you think there will be to return to shareholders in 10 years if Walmart doesn’t create a viable online presence?

Comments »

Busy, busy, busy! Earnings everywhere so I’ve taken the liberty of translating Yahoo’s pretend turnaround plan.

The plan is to fire 15% of the staff and do more of the same. And Board Member Chuck Schwab is resigning effective today. Because he doesn’t need this bullshit in his life.

Additional notes below. The financial details don’t matter. Yahoo is not an earnings story.

Wednesday AM update: Had a chance to pour over the transcript and talk to some investors. To say there’s a lack of confidence in management is a wild understatement. Marissa Mayer is connected like Kaiser Souzia in Silicon Valley. No one wants to say anything negative about her for publication. Smart, connected and vindictive is a terrifying combination.

Which is too bad because she’s a demonstrably terrible CEO and it’s not clear she understands why. Last night she complained that the press had been unfair about Yahoo’s holiday party, claiming it cost a third of the published $7 million rumors.

It’s not the expense of the party, Marissa. It’s the optics. You sat like a Mall Santa while employees waited for a brief photo opp. I don’t begrudge tremendously successful people the chance to act like Marie Antoinette or Nero. I just don’t want anyone that tone-deaf running my consumer-media-search-whatever company.

Yahoo spent 2015 trying to spin-off Alibaba tax-free through a ridiculous loophole. It didn’t work. As was made apparent last night, there wasn’t an actual back-up plan. Calling this a turnaround nearly 4 years into the gig is just weird.

The party, the insulting gibberish passing for strategy, a lack of basic human empathy. It’s all standard. Marissa isn’t royalty. She’s just paid like it. The board which agreed to her 9-figure severance package is left to defend their terrible decision or, like Schwab, simply resign with old school discretion and I assume tremendous relief to have this mess behind him. Investors should consider doing the same.

 

Comments »

Twitter shares should be much higher. They aren’t and we need to figure out why.

To get up to speed, last night CEO Jack Dorsey confirmed the departure of 4 executives via midnight emo-Tweet. Dorsey’s note came hours after re/Code first reported the seed of the story, launching rampant speculation in the Twitter-spere itself.

The lag is important. There’s skepticism in some circles regarding Dorsey’s sense of urgency and focus when it comes to Twitter. 4-days ago Jack was Tweeting about an “unconscious bias training” session he’d just completed at Square. “Twitter’s next Thursday!” he added.

To be gentle, it’s awkward to follow that with this news.

Maybe the prospect of taking unconscious bias training with Jack was just too much for the 4 execs (two senior VPs and two VPs). It’s still not clear if they quit or were forced out of Twitter for any number of obvious performance-based reasons (disastrous communications, the perplexing failure of Moments, the disappearance of Vine while SnapChat takes over the world etc ad nausea). At least one of the Departing had been “trying to quit” for while, per a Twitter exchange I had with Kara Swisher (@KaraSwisher) and @CraigScott31:

 

The exchange is everything great and maddening about Twitter. Kara Swisher has 1 million followers. Her company broke the story and she followed-up on it in real time, chatting with her massive audience about what may or may not be happening at Twitter.

Twitter gives anyone who wants one the ability to talk to the world. If you Tweet me (@JeffMacke), I’ll see it. I have 27,000 unread emails. I rarely answer my phone. I roam the earth like Caine by choice but I’ll see your Tweet. That’s kind of messed up. Twitter is insanely useful for investors. Kara Swisher is tied in to the Valley at the highest levels. She’s smart and she knows where all the bodies are buried. 5 years ago there’s almost no way I could have chatted with Kara Swisher about breaking Twitter rumors on a Sunday afternoon. Certainly not in pubic.

Kara is a smart source. She also generally defends Jack Dorsey against critics. That second part matters to me because, if we’re going totally honest here, I’m not sure Jack is up to the task of running two public companies.

.

 

Why Can’t Jack Tweet Good?

Executive turnover should be insanely positive for Twitter.

The company is bleeding share all over the place. It’s past time to get some fresh ideas at Twitter.

I’m willing to bet that had Jack Tweeted out a message remotely resembling the below shares would be pushing $20:

“I have a very specific vision of what [pick a failing product] needs to look like. Others have different views. A company can’t go in multiple directions at once. As CEO I have made the decision getting Twitter to the next level will require a more united view of our strategy. I thank these wonderful people for their contributions. My only regret is they didn’t have time to participate in our Unconscious Bias training. Using terms like ‘you guys’ can make others feel excluded.”

That last part was optional.

What mattered were speed and clarity. Twitter’s mass Exodus was either part of Jack consolidating the company behind his vision or rats leaving a sinking ship. The perception matters. It’s very hard to convince good executives to work for failing operations. Twitter is at a very fragile juncture. It doesn’t want to be seen as Yahoo.

As the hours passed before Twitter released any official response, Finance Twitter chattered away while watching football.

 

Finally @Jack released a sort of screenshot of an email linked to a Tweet:

 

 

Jack starts by blaming media inaccuracy for his having to address the flight of four top executives from his company. It’s a topic he was hoping to save for Twitter employees “later this week”. That’s a bad start. When you point fingers three point back at you, buddy. The media ran with what they had because Twitter didn’t give them anything else.

Jack never says if the execs quit, got fired or are leaving to spend more time with their collective families. “They have chosen to leave the company” implies they quit. But in the second paragraph Jack is gently stuffing all 4 in a pillowcase and throwing them under an oncoming bus. “All four will be taking some well-deserved time off” clearly implies they couldn’t keep up and were fired.

Per Swisher, Stanton has been trying to quit for months. Why couldn’t she just leave? Was Twitter thinking including the respected Stanton in a group Exodus would be more efficient?

Also, Jack didn’t mention the head of Vine who was reportedly overseeing 40 people. The exec, @JasonTorff announced via Twitter that he’s leaving to work for Google’s VR team. That’s a guy finding a better job. Seems worth mention.

Jack needs to hit the right notes. He needs to make it clear Twitter isn’t losing people it wants to keep. There is an underlying message sent when well-paid people leave low-stress jobs in favor of nothing. While execs move on for all sorts of different reasons be very sure of one thing: No one walks away from a huge pay-off. Twitter shares are down 75%. Employees wouldn’t leave unless they think on some level that drop makes sense.

Which brings us to the awkward larger point raised by Jack’s indifferent Twitter feed. Mostly he re-Tweets banal basketball pictures. Occasionally he interacts with Twitter celebs like VC Capo Marc Andreessen. The nature of the conversations don’t inspire confidence. The last Tweet from @Jack prior to the executive emo missive was this exchange:

 

 

Twitter shares are down 50% in the last 6 months. It’s down more than 20% just in 2016. Jack’s tenure his given us the hype release of Moments, some lay-offs and now this debacle. These are all problems that speak to the core user experience. Shouldn’t the CEO of such a company be, if not expert, at least able to exhibit basic understanding of the appeal of his product?

Without the weird emotional disconnect from the top Twitter getting rid of this team would be good news. The stock would be higher. No offense but none of these products has been killing it. Clearing the deck makes some amount of sense.  The stock should be higher. Instead Twitter is getting downgraded at Stifel and down 80-cents early.

I remain long only because flogging myself like an ancient monk draws stares. Later Twitter is going to announce a new celebrity board member and possibly a new product manager. Rumors are eveyone from Iger to Katie Couric. The world breathlessly awaits Jack’s next Tweet.

 

 

Comments »

Comments »