1) This story further reinforces my view that Amazon (AMZN) is going to be a huge winner emerging from the coronavirus crisis: Amazon to Keep Most of the Jobs It Added During Pandemic. Excerpt:
Amazon will keep most of the U.S. jobs it added to meet demand in March and April as it sees the surge in online orders during the pandemic as a harbinger of lasting demand for its products and services.
Amazon said Thursday it will give 125,000 of the 175,000 temporary hires the option of staying on full time, signaling it expects the recent growth to continue. The company said the jobs add to a nonseasonal U.S. workforce – both full-time and part-time – that it recently put at more than 500,000...
Amazon's move to retain more than 70% of the employees it added as the pandemic took hold points to the strength of large retailers and technology companies that have weathered the crisis, as well as to an accelerated shift to online shopping.
"As we have seen sustained demand ongoing, we expect to continue to see a lot of demand from customers throughout the rest of the year," Dave Clark, Amazon's senior vice president of world-wide operations, said in an interview.
2) Most companies, however, are getting clobbered by the crisis.
My friend Joel Litman, an accounting expert who runs an affiliated company, Altimetry, believes that this is going to lead to horrific second-quarter earnings – far worse than what Wall Street analysts are projecting. He just published an insightful article in Forbes laying out his thinking: The Next Big Bath: Wall Street Is Blind to an Oncoming Earnings Disaster. Excerpt:
Wall Street analysts seem to be blind to the real impact to earnings we'll see in the second quarter.
2020's first quarter earnings were brutal. Yet, analysts of the biggest investment banks in the world think that the second quarter is due for a significant rebound. This is not just a case of traditional Wall Street optimism. This time, the analysts are not only directionally wrong in their earnings forecasts, but also wrong in orders of magnitude.
Moreover, the Street doesn't see the big bath coming at all. The "Big Bath" is when a collapse in actual cash earnings is compounded by a financial reporting anomaly that rears its ugly head every ten years or so. That time is now.
As companies start to pre-announce and eventually report "Big Bath" earnings, how will the market react to hearing an almost daily barrage of the worst quarter of earnings in 10 or 20 years?
I highly recommend signing up for Joel's free daily e-letter, Altimetry Daily Authority – you can do so right here.
3) This front-page story in today's Wall Street Journal takes an in-depth look at the massive fraud at Luckin Coffee (LK).
Kudos to my friend Carson Block of Muddy Waters Research, who first blew the whistle on this – which I covered in my February 11 e-mail. Behind the Fall of China's Luckin Coffee: a Network of Fake Buyers and a Fictitious Employee. Excerpt:
China's upstart Luckin Coffee Inc. grew at a blinding pace. It opened stores faster than Starbucks Corp., doubled its valuation to $12 billion eight months after going public and pleased its big-name investors in the U.S.
Then, on April 2, Luckin said many of its sales had been faked.
The shock brought a screeching stop to the three-year-old juggernaut, sending its stock plunging 75% overnight. Since then, investigators have delved into the books, executives have lost jobs and a stock exchange has moved to delist Luckin, but no one has explained just what went on inside the onetime corporate rocket ship.
Now, some light can be shed.
It turns out that Luckin sold vouchers redeemable for tens of millions of cups of coffee to companies that had ties to Luckin's chairman and controlling shareholder, Charles Lu, according to internal documents and public records reviewed by the Wall Street Journal. Their purchases helped the company book sharply higher revenue than its coffee shops produced.
Meanwhile, other internal documents showed a procurement employee called Lynn Liang processing more than $140 million of payments for raw materials such as juice, delivery and human-resources services. Ms. Liang was fictitious, according to people familiar with Luckin's business.
The scale and audacity of deception, which the Journal found traced back to before Luckin's initial public offering on the Nasdaq Stock Market just a year ago, have stunned international investors and confounded regulators. This was a company that went from founding to public listing in less than two years. Its sudden fall saddled pension, mutual and hedge funds, not to mention individual investors, with heavy losses both in Asia and the West.
4) This headline in The Onion cracked me up: Protestors Criticized For Looting Businesses Without Forming Private Equity Firm First. Here's the story:
Calling for a more measured way to express opposition to police brutality, critics slammed demonstrators Thursday for recklessly looting businesses without forming a private equity firm first. "Look, we all have the right to protest, but that doesn't mean you can just rush in and destroy any business without gathering a group of clandestine investors to purchase it at a severely reduced price and slowly bleed it to death," said Facebook commenter Amy Mulrain, echoing the sentiments of detractors nationwide who blasted the demonstrators for not hiring a consultant group to take stock of a struggling company's assets before plundering.
"I understand that people are angry, but they shouldn't just endanger businesses without even a thought to enriching themselves through leveraged buyouts and across-the-board terminations. It's disgusting to put workers at risk by looting. You do it by chipping away at their health benefits and eventually laying them off. There's a right way and wrong way to do this." At press time, critics recommended that protestors hold law enforcement accountable by simply purchasing the Minneapolis police department from taxpayers.
5) With Italy reopening, my friend Ciccio Azzollini and I have decided not to cancel, but rather reschedule, our Value Investing Seminar.
We've co-hosted the event for the past 16 years in the gorgeous seaside city of Trani, in the Puglia region of southern Italy – far from the hard-hit coronavirus areas in the north.
This year, it will take place on September 3-4. For everyone's safety, it will be limited to only 30 people and will be held in a conference room with capacity of 120.
Click here for more information. To register, please e-mail Valeria Plaoscia at contact@valueinvestingseminar.it.
Here's a picture of Ciccio and me last summer, overlooking Trani's harbor at sunset:
I hope you can join us!
Best regards,
Whitney