Hey Snackers,
Have you... exhausted all of Netflix, down to the 7-hour epic on Norwegian salmon fishing? Watched enough Disney+ that you broke the laws of physics and began aging backwards? It's your lucky day: the Supreme Court is launching free streaming — let the oral arguments binging begin.
Markets managed to squeeze out some small gains, but airlines continued their fall. More on that below.
Warren Buffett breaks up with the skies: Berkshire Hathaway sells entire airline stake
All's fair in love and War(ren)... With air travel down around 95% compared to a year ago, airlines are getting pummeled — and their plight just got worse now that one of their top investors expressed zero confidence in their future. Over the weekend, Warren Buffett's legendary holding company Berkshire Hathaway revealed that it sold its entire airline stake.
- Flirtation: After avoiding airlines for years, Warren was finally seduced by steady profits and began investing in 2016.
- Commitment: Big Berkshire money poured into shares of America's 4 largest airlines — Berkshire gained an 11% stake in Delta, 10% of American and Southwest, and 9% of United.
- Break-up signs: Back in April, Berkshire sold 18% of its Delta stake and 4% of its Southwest holding as the pandemic destroyed profits.
- Cold turkey split: Berkshire has now sold its entire airline holding. The shares were acquired for around $7.5B, and are being sold for around $4B — a massive loss. Berkshire announced a record $50B loss for its first quarter.
It's not you, it's me... Warren said that investing in airlines was his mistake, and that the "excellent CEOs" of the 4 airlines did nothing wrong. Still, the fact that long-term investment icon Buffet sold his entire investment at a significant loss suggests a dire outlook for airlines.
Airlines' pain could be a long-term issue... Even after the COVID-19 situation improves:
- Airlines will have to take money-draining precautions, like leaving middle seats empty and running half-full flights.
- Fear/germophobia could continue long-term, so people could end up flying less. Plus, some may not even have the money to anymore.
- The WFH experiment will likely reduce biz travel in the future, as companies realize those business class trips to London may not have been that necessary.
- Even when airlines start making some money again, the massive debt they will have racked up may overshadow any gains.
Quibi's lawsuit drama includes Snapchat and the most aggro fund on Wall Street
Next up on Chrissy's Court... Quibi gets served. Quibi is the mobile-centric, ridiculously well-funded short video streaming app that launched in April. One of its most distinguishing features and differentiators is "Turnstyle," which lets you seamlessly switch between horizontal and vertical phone viewing — it's also the reason Quibi's getting sued:
- Interactive video company Eko is accusing Quibi of stealing its patented tech. Reportedly, Eko showed the tech (including its code) to Snap employees, who were later poached by Quibi. Quibi denies any foul play or code-swiping.
- To spice things up further, Quibi founder Jeff Katzenberg met with Eko's founder Yoni Bloch in 2017 about an investment opportunity. Then in 2019, former-Snap/current-Quibi employees met with Eko peeps again.
And the plot thickens... To win against billions-backed Quibi in a lawsuit, Eko needs serious cash. Enter Wall Street's most-hardo hedge fund, Elliot Management (see: ultimatum'd Jack Dorsey).
- Elliot is bankrolling Eko's lawsuit, in exchange for a "substantial" stake in the company — according to #PFWTM.
- If Eko/Elliot wins the suit, Quibi would likely have to stop using the signature turnstyle tech or license it from Eko.
Patents like "Turnstyle" make companies... That's why Elliot is financing this lawsuit. It's just like how Gore-Tex doesn't make North Face or Patagonia jackets, but rakes in money when brands pay to use its patented weather-tech. Elliot/Eko could enjoy a major opportunity if other apps license its turnstyle technology (if they win in court, that is).
J. Crew becomes the 1st major retailer to file for bankruptcy — but its struggles are pre-pandemic
What is 'Chambray' and why is it $78?... J.Crew, the purveyor of breathable blazers, slim-fit khakis, and pastel-colored cableknit sweaters, has officially filed for bankruptcy — it's the first big retail victim of the corona-conomy, but its issues go waaay back....
- J. Crew was public until 2011, when 3 private equity firms took it private by borrowing almost $3B (aka, leveraged buyout). J.Crew got saddled with this massive debt. Then it got worse....
- In 2015, J.Crew's formerly fresh/innovative style began losing relevance as tastes shifted. It got stuck in an awkward spot: too expensive to be fast-fashion (like Zara), but not desirable enough to be splurged on as a higher-end brand.
- Now it's stuck with almost $1.7B in debt. The bankruptcy filing will allow it to stay in business and sell online (until stores can reopen), all while loading your inbox with 60% off sale emails.
You're not having deja-vu... J.Crew narrowly avoided bankruptcy in 2017. Then it tried to spin off its faster-growing Madewell brand into a public company this year so it could raise $$$ to pay back its boatload of debt. But that IPO never got a chance to put on its NYSE blazer (because, coronavirus).
Corona-conomy didn’t cause this bankruptcy — it accelerated it... For almost a decade, J. Crew has been saddled with massive debt that only grew worse as its popularity diminished. Now it gets an expensive "fresh start" under Chapter 11 bankruptcy.
- Bankruptcy doesn't mean J.Crew is finished — it means it can't pay back its debts. Now it gets time to potentially restructure and reduce its debt load, if the judge agrees.
- TBD if it will survive longer-term Even with a restructuring, J.Crew isn't out of the New England woods just yet. It'll eventually need to pay back debts under the new plan — but it won't be able to do that unless it transforms its struggling brand reputation.
- FYI it's sadly gone through 4 CEOs in 2 years to figure all this out.
What else we’re Snackin’
- Nugget: Tyson Foods' quarterly profit fell 15% after the meat giant closed and slowed production at multiple plants.
- Treat: The World Health Org will work with the US gov and Gilead to make Remdesivir more widely available as a COVID-19 treatment.
- Metro: Intel scoops up Israeli public transportation app Moovit for $900M.
- Surprise: Carnival will resume its cruise line service on August 1, a week after its virus-related "no-sail" order is due to expire.
- Vicky: L Brands-owned Victoria's Secret will no longer be taken private by Sycamore Partners, which managed to wiggle out of the deal.
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Tuesday
- Earnings expected from Disney, Pinterest, Beyond Meat, Virgin Galactic, Fiat Chrysler, Activision Blizzard, Etsy, Zynga, and New York Times
Disclosure: Authors of this Snacks own shares of Delta, Carnival, and Beyond Meat
ID: 1175717