Ghost Grad Jordan Theron brings us Ghost Global this week, featuring updates ranging from the Oracle of Omaha through to meat-free burgers and Amazon’s foray into robotic vacuum cleaners.
Berkshire bites the bullet
Even the Oracle of Omaha himself, Warren Buffett, isn’t immune to the market going against him. The company reported a 38.8% increase in operating earnings, though the number that shareholders will focus on is a $53 billion loss in investments.
Berkshire Hathaway is concentrated in five stocks: Apple 38.2%, Bank of America 9.8%, Coca Cola 7.7%, Chevron 7.2% and American Express 6.4%. There have been sharp declines in Apple and the two financial services companies.
Of course, these are just paper losses. They aren’t realised unless the positions are sold. The same is true on the way up when valuation gains are reported.
In case you’re wondering, the growth in operating earnings is attributed to the core business operations including insurance, railroads and utilities.
The share price is down 2.4% this year, significantly outperforming the S&P500 with a drop of 13% year-to-date.
Tesla tricks
The Ghost’s favourite stock (ahem) achieved shareholder support for a 3-for-1 stock split. This will take the number of shares in issue from 2 billion to 6 billion.
In a stock split, as the name suggests, the number of shares in issue increases but the value of the underlying company is unchanged. The pie has simply been cut into more pieces.
In a world of fractional share ownership, it has become less important to execute stock splits to make each share more affordable. In a 3-for-1 split, a share that was trading at $900 would now be worth $300.
The company’s stated rationale for the split is to give employees “more flexibility in managing their equity” in addition to making the stock more accessible for retail investors. The main motivation seems to be to recruit and retain top talent through rewarding employees with equity.
In theory, this increases employee satisfaction. Of course, that only applies if the stock goes up. The employees at a company like Shopify aren’t very satisfied with the shares received.
Beyond Meat leaves a bitter taste
With climate change at the top of the agenda since President Biden took office, it’s no surprise that Beyond Meat has been a popular stock among thematic investors. The food may be plant-based but the business is anything but firmly planted, with a net loss of $97.1 million vs. a net loss of $19.7 million in the comparable quarter last year. Net revenue declined by 1.6%. It’s ugly.
The poor performance has been attributed to a slowdown in sales with franchise partners like McDonald’s, as well as consumer pressures that have driven a return to cheaper, animal-based products. There has also been a lack of coherent, concise advertising to the mass market about the benefits of plant-based products.
Beyond Meat is now down 37% this year despite a 28% rally this month. The company announced layoffs of staff and the market responded positively, perhaps believing that executives of growth stocks are finally starting to manage the income statement below the revenue line.
Alibaba beats estimates but nobody cares
Alibaba beat revenue and earnings expectations in its first quarter. Despite challenges in China during a period of Covid-related lockdowns, the house that Jack built persevered and overcame these issues.
Around 70% of revenue is generated in China and those sales grew by 8% year-on-year. This has supported an increase in the share buyback programme from $15 billion to $25 billion, taking advantage of a highly depressed share price.
The Ghost knows all about that, having lost over half the value of his Alibaba position. On an earnings beat, the share price should be up. Instead, it’s down over 22% this month after concerns about the future of the listing on the US market. On the other end of the world, there’s always the threat of regulatory attacks from the CCP (Chinese Communist Party).
Amazon sucks
Amazon made its 4th largest acquisition in its history this week when it purchased iRobot for $1.7 billion. This company is known for making the robotic vacuum cleaner called the Roomba. The idea is to strengthen Amazon’s presence in consumer robotics, complementing Ring doorbells and smart home devices like Alexa.
The three largest acquisitions in Amazon’s history are Whole Foods ($13.7bn), MGM Studios ($8.45bn) and One Medical ($3.9bn).
iRobot was founded in 1990 by a group of MIT (Massachusetts Institute of Technology) roboticists and the autonomous vacuum cleaner has been their claim to fame. Robotic mops and pool cleaners have also been introduced.
iRobot was a pandemic darling, when consumers were stuck at home and spent their money on useless things (be honest – we all made one of those purchases). Now that Covid has faded and been replaced by heavy inflation, revenues have taken a 30% hit and 10% of the workforce has been cut amid rising costs and declining revenue.
Amazon has a huge balance sheet, so it doesn’t care about silly things like operating losses. The deal will require regulatory approval before it can go ahead.
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