ERShares In The News

Babson College Professor Dr. Joel Shulman discusses Peloton’s recent IPO and expresses reasons for concern. He mentions that the company recognizes revenues in full immediately, even though most customers finance 100% of their purchase. Notably, the company does not show any bad debts or high accounts receivables balances which could be a problem in the future. During the show, Dr. Shulman also discusses problems with recent IPOs (Uber, Lyft, We Work, Endeavor, etc and the current climate. It’s common knowledge that some IPOs have dropped significantly since inception or pulled the IPO altogether. He cites bad behavior among some executives who may be exhibiting poor judgment or self-dealing. Dr. Shulman provides historical references to Lucent Technologies, a top technology firm during the dot.com era, that was cited by the SEC for fraudulent behavior associated with revenue recognition. Lucent quickly plummeted and went from one of the largest NYSE market cap companies to bankruptcy within 5 years from its peak.

Babson College Professor Dr. Joel Shulman the impact of drone strikes on Saudi oil fields and impact in financial markets. He notes that the large excess oil reserves will help stabilize the Market and minimize global concerns. He also points to the ability of other producers such as the U.S. and Iraq, who will be able to assume some of the burden as higher oil prices create incentives for high-cost producers (e.g. frackers) to enter production. Dr. Shulman adds that the somewhat muted response by Financial Markets this morning may be more focused on impending news expected from the U.S. Federal Reserve and China trade deal later this week. He also expresses concerns that the markets may not be pricing in risks associated with the potential for other, more damaging drone strikes or potential military conflict with Iran.

Babson College Professor Dr. Joel Shulman discusses the inversion of short and long-term interest rates as well as negative interest rates now occurring throughout Europe and Japan. He notes that the inversion of short and long-term interest rates are largely a function of investor hedging and demand for certain bond maturities and not anticipated economic recession. He mentions that this is not his major worry. By contrast, the negative interest rates that now sweep across Europe and Japan contribute to a reduction in GDP and economic recession. For example, Switzerland, Germany, France, Netherlands, and Japan all have negative interest rates that approach -1.2% for 5-year bonds. He suggests that negative interest rates, if brought to the US, will potentially wreak havoc on pension funds and other long-term investors, who need to build up assets to meet rising future liabilities. Dr. Shulman adds that continued interest rate reductions, that the Market may now be pricing into expectations, will only exacerbate problems faced by Pension Funds and other long-term investors.

Babson College Professor Dr. Joel Shulman discusses Best Buy earnings and compares their margins and relative valuation to Wall Mart and Game Stop. He also discusses the recent news on China trade talks and suggests that perhaps the Trump administration should use negotiating leverage (potential incentives) with the MITI-V (Malaysia, India, Thailand, Indonesia, and Vietnam) as a way to encourage China to agree to good terms (with the US) faster. Once the supply chain diverts from China to an alternative country, China will have lost that revenue forever. Dr. Shulman believes that rather than request that US companies move away from China, the current administration should consider economic incentives to do so.

Babson College Professor Dr. Joel Shulman discusses a variety of topics including Apple’s new product cycle, losses at The Limited and an Op Editorial in the New York Times that addresses compensation and job issues. He mentions that entrepreneurial companies create jobs at a much faster pace than bureaucratic companies (14% growth vs 3% last year). Dr. Shulman discusses the strong pace of current mergers & acquisitions activity and how companies have the incentive to borrow at low-interest rates and cut costs through layoffs. He notes that the Market has $1.4 trillion in pending M&A deals (5,800+ deals).

Babson College Professor Dr. Joel Shulman discusses Walmart earnings and contrasts them with Amazon. He notes that Walmart has generated significant growth in revenues, particularly food services and offers superior pricing compared to Amazon. However, Amazon has more significant margins and has grown jobs while Walmart, net of mergers and acquisitions, has not. The growth of jobs at Amazon is consistent with the growth of jobs at other entrepreneurial companies.

Babson College Professor Dr. Joel Shulman discusses recent Uber earnings and valuation issues relative to Lyft and other Companies. He mentions the significant increase in R&D (up 750% from prior periods) and additional ancillary businesses. He also notes increased competition in the industry. The discussion also includes comments regarding Boeing’s litigation and a separate comment regarding the risk exposure many companies now face with a few rogue employees.

Babson College Professor Dr. Joel Shulman discusses Apple's earnings and contrasts them with the other $1 trillion market cap company, Microsoft. He notes that Microsoft has 10x the revenue growth of Apple and higher margins. He also mentions that the CEO at Apple earns $140 million per year, which is at least 3-4x larger than CEO at Microsoft. In the interview, he also discusses GE, Boeing, the Federal Reserve rate cuts and Beyond Meat. Dr. Shulman describes Beyond Meat as an over-priced food company that doesn’t trade anywhere close to basic fundamentals. He mentions that the company has 60 million public shares authorized/outstanding but only has 11 million available of “free float” that can trade in the marketplace. High volume and the high percentage of short sellers create extreme volatility for investors. He contrasts Beyond Meat valuation metrics with other food companies such as Kellogg and notes they are 30x higher! He states that the food industry is so hungry for the growth opportunity that they may over price some securities in the short term.

Babson College Professor Dr. Joel Shulman discusses earnings from Google, Amazon, Twitter, and McDonald's. He notes that Google exceeded EPS estimates of $11.30 vs. $14.21 actual and grew its Cloud revenue to an $8 billion run rate. He also notes that Google increased its Advertising click revenue by 16% and other revenue by 40%. Despite missing its earnings guidance, Amazon has grown its R&D spending by 27.5% and has also increased its employee base from 117,000 to 648,000 during the last five years. A potential concern for Amazon shareholders is the competitive AWS category (Amazon Web Services) in which the percentage of total revenues has grown from 10.7% to 12.9%, although AWS's profit margin has dropped from 72.7% to 50.3%. As a final comment, Dr. Shulman discusses how Twitter increased its user base by five million customers, its biggest jump in several years, and how McDonald's has 30% lower sales today than five years ago but has achieved higher profits.

Babson College Professor Dr. Joel Shulman discusses Netflix's missed guidance, IBM’s continued deterioration and expectations for Microsoft after-hours announcements. He notes that Netflix had a decline in U.S. subscribers and a slow down with international growth. He believes these two factors coupled with increasing competition and an aggressively priced stock will create headwinds on performance for the near future.