Usurping Power of the Purse
We’re getting a little political today, but I assure you it’s investing related. So, bear with me…
Let’s talk about TikTok. Great Stuff has mentioned this social media app before. My daughters absolutely love this app, but how popular is TikTok, really?
The company has more than 800 million users globally, with 165 million of those in the U.S. Some 40% of those users are in the 16 to 24 age group. It’s quickly becoming gen z’s “Facebook.”
TikTok is owned by ByteDance, a Chinese multimedia technology firm. As a result, the mainstream media hubbub surrounding TikTok stems from unsubstantiated claims that the company sends user data directly to the Chinese government.
It’s a claim that President Trump has made frequently, and the argument is central to Trump’s threats to ban the app in the U.S.
I’m not saying data sharing with the Chinese government doesn’t happen. All I’m saying is that definitive proof has yet to be released. But that’s not the point I want to make here…
Regardless of how TikTok handles user data, there’s a much bigger issue facing potential investors. President Trump was all set to outright ban TikTok until Microsoft Corp. (Nasdaq: MSFT) announced it was in talks to acquire the company from ByteDance.
This is where things get sticky. Microsoft’s interest prompted Trump to give TikTok 45 days to make a deal or face a ban.
Next, Trump told Microsoft CEO Satya Nadella that a “…very substantial portion of the price [for TikTok] is going to have to come into the Treasury of the United States, because we’re making it possible for this deal to happen.”
Let’s distill that a bit further:
- The U.S. president threatens to ban a company.
- A U.S. company offers to buy that company.
- The U.S. president delays the ban and demands money from the deal.
That’s a real nice app you have there. It’d be a shame if something unfortunate happened to it.
But there’s more when you consider that the executive branch of the U.S. government doesn’t have the power to levy taxes.
And, let’s be honest, if this isn’t an extortion racket (which isn’t legal), then this demand for money on the TikTok acquisition is a move to levy taxes on a corporate deal. Levying taxes is called the “power of the purse,” and it’s reserved exclusively for the legislative branch.
From John Coates, a law professor at Harvard University:
What’s worse is that Microsoft is ready, willing and able to make this happen. In a blog post, Microsoft wrote that it “…is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including the United States Treasury.”
Allowing a U.S. president to pressure a foreign company into a deal with a U.S. company — and then demand money for that deal — sets a dangerous precedent.
A rather chilling precedent that could negatively affect every single merger deal that comes down the pike afterward. (And that’s aside from the president usurping Congress’ power of the purse.)
As much as I’d like to see Microsoft make this giant leap forward in the social media market, the company needs to walk away from this deal — for all our sakes.
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Going: Red Dead Revenue
I get the impression that not a lot of investors take the video game market seriously. Earnings this week should change your mind. Take Take-Two Interactive Software Inc. (Nasdaq: TTWO) for example.
Take-Two makes some of the most popular video game titles right now, including the Red Dead, Grand Theft Auto and NBA 2K franchises. Those franchises and a pandemic-captive audience helped push Take-Two earnings and revenue past Wall Street’s expectations:
- Earnings reported: $2.30 per share. Expected: $1.60.
- Revenue reported: $996 million. Expected: $843.7 million.
Furthermore, Take-Two put current-quarter and full-year guidance well above the consensus estimates.
“We had an extraordinary quarter,” CEO Strauss Zelnick said. “We’re outperforming against our own expectations, our guidance and analyst consensus on every metric.”
And you thought everyone was just streaming Netflix and binge-shopping on Amazon!
Just wait until the next generation of video game consoles launch this holiday season. Take-Two’s blowout earnings are just the tip of the gaming iceberg. The video game sector is about to take off, and we’ll keep you in the loop if we spot a way for you to play the trend.
Going: What’s My Product Again?
After its recent quarterly report, Virgin Galactic Holdings Inc. (Nasdaq: SPCE) still has no revenue. None. Nada. Zip.
The wannabe space tourism company reported a loss of $0.30 per share, wider than the $0.19 per share it lost in the same quarter last year.
What’s more, the company has yet to visit actual space. Yes, I’m splitting hairs here on the definition of “space,” but if the high-Earth-atmosphere suit fits…
But earnings aren’t why SPCE shares fell back to Earth today. The real reason is that Virgin Galactic announced that it’ll sell 20 million new shares. If you don’t have an actual product to sell consumers, you have to sell something.
There was, at least, some good news on the product front. Virgin said it has received about 600 deposits for space flights, with “minimal” refund requests. Furthermore, the company plans to start the new year with a blast by launching Founder Richard Branson into space in the first quarter of 2021.
So, Virgin is making progress. At $250,000 a pop, I’m not sure how many flights to “almost space” the company will sell once operations are up and running. But there’s at least some potential there.
And it will be better for investors, as opposed to selling more SPCE shares.
Gone: Hackett Can’t Hack It
As my dad always said: “Either you can hack it or you can’t. Can you hack it?”
Ford Motor Co. (NYSE: F) CEO Jim Hackett is moving on. Apparently, Jim just can’t hack it anymore.
Ford diehards are probably a little sad today. Hackett presided over the $11 billion restructuring of Henry Ford’s baby, pushing the revamped Mustang Mach-E, the F-150 and the resurrection of the Bronco line.
But there’s a massive shift in the automobile industry. The Teslas and Nikolas of the world are driving massive investment in electric vehicles (EV). World governments are becoming more and more eco-friendly. And that means bye-bye to the combustion engine — long Ford’s bread and butter.
Taking over for Hackett is Chief Operating Officer Jim Farley. According to Executive Chairman Bill Ford: “We now have compelling plans for electric and autonomous vehicles, as well as full vehicle connectivity.”
Here’s hoping that Farley can usher in a new era for Ford, one that invests heavily in EVs and autonomous vehicles. It’s honestly the only way Ford will be able to compete in the future.
Today’s quote comes fresh off of Amazon.com Inc.’s (Nasdaq: AMZN) through-the-roof earnings last week.
If you missed the story, here’s the Cliff’s Notes version: Amazon went beast mode, with earnings per share surprising estimates by over 600%. Unsurprisingly, online shopping was a hit in the pandemic. Who knew?
You’re now caught up on the retail backdrop as we see more and more long-historied retailers closing up shop, such as the soon to be extinct Lord & Taylor. Let’s dive into the sector’s deep, dark abyss with Macy’s former brand experience officer, Rachel Schectman:
It’s a twofold “stuck between Amazon and a hard place” issue.
Not only do the department store dinosaurs sell brand-name clothing that can be found (cheaper) online, but many big-name specialty brands found it easier to start their own boutiques and websites than stay dead in the mall fountain water.
The niceties and traditions of Macy’s or Lord & Taylor are but mere kindling beneath the Bezos bulldozer. I know, it’s a rough sight for sore eyes these days to see longstanding pillars of retail crumble.
The “sudden but also not that sudden” downfall of department stores like Lord & Taylor is just the iceberg’s tip of the retail world’s shift or drift. You mix and mingle with online shopping, or you’re out. You hit the niche and serve it well, or it’s virtual free real estate for Amazon.
The Wall Street Journal also points to the “sensory experience not replicated online” as a reason why U.S. based department stores are failing — and why overseas cousins like Harrod’s and Nihombashi Mitsukoshi are holding strong with artisan exhibits and world-renowned food halls.
Besides, when I can order a whole oil barrel of Cheez Whiz online in a single click, what’s the point of stepping into a Macy’s? The empty Capri Suns on the carpets, the moldy drop ceiling or the fake plants that still somehow die?
Ah, the sensory experience of stale retail.
Great Stuff: You’re Online Anyway…
Speaking of departments, I just got off the phone with our Department of Reader Feedback. Hey, we take you (and your emails) that seriously around here. So let’s cut to the chase. We want to up the ante with this week’s Reader Feedback with more action, more stock talk, more zingers and well, more you!
You’re online anyway right now … why not drop us a line?
GreatStuffToday@banyanhill.com is where you’ll reach us best. We’ll even get the conversation started for you:
- Should the U.S. Treasury get some scratch out of the TikTok deal? Or does government interference muddy the investing waters?
- Would you shell out a quarter mil to barely touch the edge of space with Virgin Galactic?
- When was the last time you shopped at a department store?
- How about that new Ford Bronco, huh?
Go ahead and drop us a line: GreatStuffToday@banyanhill.com.
And if you don’t want your email featured in our weekly Reader Feedback columns, just let me know. It’s cool — really. You can always follow us on social media too: Facebook, Instagram and Twitter.
Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff