Dancing with the Diva (Derivatives, DWD) Project
High Anxiety on GameStop and Tesla
Dr. Shantaram Hegde, Professor of Finance
University of Connecticut
Copyright ©
3/11/21 The New York Times [email protected]
Roblox Tops $45 Billion on First Day of Trading as Gaming Booms
By Kellen Browning
The gaming site, valued at $4 billion a year ago, has benefited from the way children are passing their time in the pandemic.
2/10/21 Andrew Ross Sorkin [email protected]
Is it over? GameStop’s stock is down 86 percent from its peak at the height of meme-stock mania. In terms of market cap, the decline has wiped about $20 billion from the retailer’s value. The boom-and-bust pattern is similar for AMC, Bed Bath & Beyond and other companies swept up in the seemingly short-lived frenzy.
Andrew Ross Sorkin [email protected] 2/1/21
State of play
In all the recent market mania, it might be easy to forget that there’s an actual company at the center of the frenzy. Here’s a quick look at the real-world prospects for GameStop, which begins the week with a market cap of more than $20 billion, up from $1 billion at the start of the year.
Running the numbers. GameStop’s annual sales peaked at nearly $10 billion before falling to $6.5 billion in its most recent pre-pandemic fiscal year. It has recorded a loss in eight of its past 10 quarters.
The biggest challenge. Gamers can now easily download their games directly instead of going to a store. That means GameStop needs to find a use for the more than 5,000 stores it operates. It could downsize, and it’s been trying, but this is expensive and difficult; unwanted retail properties are flooding the market. And shrinking to grow has not proven a path to retail greatness. In truth, few specialty retailers have turned their business around in the face of technological disruption. (Best Buy is an exception.)
The biggest opportunity. Analysts point to recent strength in GameStop’s digital business over the holidays, and an upcoming refresh cycle for gaming consoles, as cause for optimism. Even so, it’s hard to justify its sky-high valuation: Its price-to-sales ratio is nearly the same as Amazon’s. Analysts’ average price target for the stock is just over $13 per share; in premarket trading today, the stock is at $300.
“There’s no reason that stock should be where it is,” Bruce Cohen, co-founder of the retail advisory firm CH Consulting, told DealBook. “That is just a stock manipulation exercise.”
Why it matters. When investors get valuations wrong, “capital goes to less productive companies at the expense of companies that would have used it better,” said Eric Gordon, a professor at the University of Michigan’s Ross School of Business. This notion has not necessarily been tested by GameStop yet, which would have to raise funds at its current valuation, as other companies have done during the past year’s market rises.
The “biggest risk,” according to Lynn Turner, a former chief accountant of the S.E.C., is that people stop putting money in the markets “because they think it’s turned from investing into betting at a craps table.”
GameStop Stock Soars, and Social-Media Traders Claim Victory – WSJ
GameStop Stock Soars, and Social-Media Traders Claim Victory
Members of Reddit’s popular WallStreetBets forum have been touting the videogame retail for weeks
By
Caitlin McCabe
Updated Jan. 14, 2021
Individual investors who recently piled into GameStop Corp. GME +16.48% are taking a victory lap this week after shares of the struggling company doubled in the last two days, putting the stock on pace for its best weekly performance on record.
For weeks, members of Reddit’s popular WallStreetBets forum have been touting GameStop, encouraging others to scoop up shares of the videogame retailer and begin making bullish wagers. Several posts on the forum had noted that short sellers’ bearish GameStop bets had been at elevated levels.
Short interest, which indicates the interest of investors betting a stock will fall in value, has hovered around 138% of the stock’s free float this year, FactSet data show. This makes it the second-most-shorted company by that metric across the New York Stock Exchange and the Nasdaq, according to Dow Jones Market Data. That had some Reddit users predicting that the stock might rapidly rise if short sellers had to cover their bets by buying back shares should the stock suddenly increase in value.
This week, that forecast finally appeared to take shape after news of changes to GameStop’s board sent shares climbing.
On Monday, the company said it had struck a deal to add Chewy Inc. co-founder Ryan Cohen and two former executives to the GameStop board.
The announcement pushed shares up 13% on the day. On Wednesday, gains accelerated, and GameStop catapulted 57% higher, its biggest share-price jump in history. GameStop gained an additional 27% on Thursday.
On Reddit on Thursday, WallStreetBets users were celebrating GameStop’s gains. Many posted screenshots of big wins from bullish options bets. Several talked about how they would spend their profits. One user posted that the experience demonstrates that the WallStreetBets forum “runs the market.”
Once just a small presence in the financial markets ecosystem, retail traders are increasingly influential. Retail-trading activity has exploded within the last year as individual investors, many of whom are stuck at home during the pandemic, have begun to try their hands at trading.
More than 10 million new brokerage accounts were opened in 2020, JMP Securities estimates. And on peak trading days last year, individual traders are estimated to have accounted for nearly 25% of U.S. trading activity, Citadel Securities estimates. Through social media and the ability to make free stock trades, individual investors have been able to turn companies into market sensations—GameStop being among the latest.
GameStop’s rapid share-price moves, analysts said, were largely spurred by news of Mr. Cohen’s addition to the board, as well as the company’s announcement Monday that online sales sharply increased during the holidays. Mr. Cohen’s investment firm has been building up a stake in GameStop and has urged the company to improve its online business. Mr. Cohen is known for the e-commerce savvy he displayed at Chewy, the pet-products online retailer.
That set the stage for the short squeeze as bearish investors moved to buy back stock, analysts and individual investors said.
“The shorts are freaking out,” said Michael Pachter, a research analyst at Wedbush Securities. Meanwhile, “Robinhood message boards are bragging.”
One individual investor who was celebrating GameStop’s win Thursday was Jackson Call, a 24-year-old trader. He had been seeing WallStreetBets users encouraging others to buy shares of the company in recent weeks.
“I was thinking, ‘GameStop? What in the world?’” said Mr. Call, a student in North Carolina. “I kept saying, ‘No way am I going to buy into this thing.’”
But this week he saw CNBC’s Jim Cramer mentioning GameStop on Twitter. He decided to purchase roughly 80 shares of the company for slightly more than $20 apiece at the opening bell Wednesday, he said. That was right before the stock catapulted higher.
“I think it’ll just keep marching higher because there’s such a high short interest,” Mr. Call said. He picked up more shares of GameStop on Thursday when the stock was trading slightly below $34. Shares of GameStop closed the day at $39.91.
Write to Caitlin McCabe at [email protected]
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the January 15, 2021, print edition as ‘GameStop Shares Surge in Value, Rewarding Individual Investors.’
https://www.wsj.com/articles/from-fall-guys-to-among-us-how-america-turned-to-videogames-under-lockdown-11604116815
From ‘Fall Guys’ to ‘Among Us,’ How America Turned to Videogames Under Lockdown
With little else to do, Americans are spending record amounts of money on videogames. New players are taking up the habit, and even parents are embracing the pastime as a way for kids to socialize online. By Sarah E. Needleman Updated Oct. 31, 2020
Videogames were already a multibillion-dollar industry. The pandemic is sending them to another level.
With so many people taking a break from movie screenings and dining out, spending on videogames and equipment has been hitting all-time highs every month since March. People who already played videogames are playing more, and former gamers have dug their dusty consoles out of the closet to revive the hobby. Newbies are taking up the habit, too.
New releases such as “Animal Crossing: New Horizon” and older hits like “Grand Theft Auto V” are reeling in players across generations and geographies, as gamers are drawn—at least in part—by the ever-increasing opportunities to socialize with friends and strangers inside virtual worlds.
The surge in popularity is accelerating a shift in the balance of power within the global entertainment landscape. Musicians, athletes and politicians are increasingly seeking out games and game-streaming platforms for attention. And tech giants are betting big that the trend will outlast the pandemic: Microsoft Corp. , for instance, announced plans in September to spend $7.5 billion to acquire the company behind the popular Doom game franchise.
Over the summer, Jason Anthony went from playing videogames only on weekends to playing daily. His new routine didn’t change when he went back to commuting to the office in September after a six-month stretch of working from home.
Jason Anthony went from playing videogames only on weekends to playing daily when he started working from home in March. He’s still playing every day even though he’s now back at the office for work.
PHOTO: JASON ANTHONY
“I got really engaged during that extra time and now it’s kind of an addiction,” said the 37-year-old web developer in Green Bay, Wis. He expects to spend about $1,000 on games this year, up from $300 in 2019. “It’s not just me,” he said. “My friends are more active as well.”
An estimated 244 million people in the U.S. play videogames, according to a May survey from NPD Group, which is up 15% from a 2018 study. Americans spend an average of 14 hours a week playing videogames, the report said, compared with 12 hours weekly in 2018.
“We’ve jumped ahead a couple years in terms of consumer behaviors around gaming,” NPD analyst Mat Piscatella said. “We’re not likely to return to pre-pandemic baselines around engagement or spending.”
The phenomenon points to a shift in attitudes toward videogaming. Once stigmatized as an addictive pastime that catered to shut-ins, gaming has entered the social mainstream. Many parents who felt conflicted about videogames before the pandemic are now grateful for an activity that, thanks to technological advances in recent years, allows children to easily connect online.
Scott Thompson’s 8-year-old daughter and 6-year-old son are playing games online more often these days. The pandemic has left them with few other safe options for having fun with their friends and cousins.
PHOTO: SCOTT THOMPSON
Scott Thompson, a quality-control specialist for a medical-device manufacturer in Indianapolis, said he doesn’t mind that his 8-year-old daughter and 6-year-old son are playing games online more often these days. The pandemic has left them with few safe options for having fun with their friends and cousins. Without videogames, “they would’ve gone crazy by now and then my wife and I would be going crazy,” he said. “They need that social interaction.”
Companies have been moving to take advantage of the industry’s pandemic-fueled momentum, touting how playing games is a safe way to socialize. Zynga Inc., publisher of Scrabble-like “Words With Friends” and adventure game “Merge Dragons,” was among those promoting the idea on social media with the hashtag #PlayApartTogether.
Tech giants such as Facebook Inc. and Amazon.com Inc. are ramping up investments in new technologies such as cloud-gaming, or the Netflix-like streaming of videogames over the internet to reach players. Traditional game publishers are sharpening efforts to deliver hits for mobile devices, where consumers are spending the bulk of their money on the likes of puzzle game “Candy Crush Saga,” village-building game “Coin Master” or battle game “Pokémon Go.” Investors are driving up valuations of closely held gaming startups as well as publicly traded veterans, in turn, triggering a surge in initial public offerings, acquisitions and fundraising deals.
Unity Software Inc., which provides software for creating mobile games and other visual content, has seen its shares shoot up more than 80% since its initial public offering in mid-September.
The gaming industry has had $10.3 billion worth of mergers, acquisitions and buyouts and $1.7 billion of venture investments this year through mid-October, according to PitchBook. That compares with $7.8 billion of deals and $1.7 billion of venture investments for all of 2019.
Investor interest in videogaming is so strong that the best funding opportunities are drying up, said Max Motschwiller, a general partner at Meritech Capital Partners, which has poured more than $100 million over the past five years into firms such as Roblox and “Pokémon Go” creator Niantic Inc. “Many of these companies don’t need to raise additional capital,” he said.
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Industry executives see a confluence of factors—more devices to play on, new business models around game streaming and the rise of in-game concerts and other events—fueling the sector’s expansion well beyond the pandemic, at least for companies that position themselves in the right way.
“Ten years from now, in how people allocate their time around entertainment, gaming will be the largest,” Microsoft Chief Executive Satya Nadella said in September. The tech behemoth in recent years has been building up its portfolio of game studios, which include the makers of franchises such as Forza, Gears of War, Halo and Minecraft.
Even before the health crisis drove up demand for at-home entertainment, the industry was primed for 2020 to be a banner year—helped by the coming November releases of next-generation versions of Microsoft’s Xbox and Sony Corp.’s PlayStation gaming consoles.
At the start of the year, analytics firm Newzoo BV predicted global consumer spending on game software would hit about $159 billion this year. Now, it is estimating 2020 sales will hit nearly $175 billion.
This past week, Microsoft said Xbox content and services revenue increased 30% for the September-ended period, while Activision Blizzard Inc., the largest U.S. game publisher by market capitalization, said net revenue rose 52% from a year earlier to $1.95 billion.
Discord Inc., maker of a free communication platform beloved by gamers, said its monthly users grew 67% between January and August. Gamers watching each other play videogames drove viewership on live-streaming platforms such as Amazon’s Twitch, Alphabet Inc.’s YouTube Gaming and Facebook Gaming. In the third quarter, people watched 7.46 billion hours of live streams, nearly twice as much time as they spent a year ago, according to software provider Streamlabs.
Among the things they were watching: “Fall Guys: Ultimate Knockout,” an obstacle-course-style game with jellybean-like characters released Aug. 4. Dave Bailey, CEO of the game’s creator Mediatonic Ltd., said the added eyeballs helped make the game a social-media darling, attracting celebrity players like Formula One race-car driver Lando Norris and brands such as KFC wanting to have their mascots added to it.
Mediatonic CEO Dave Bailey said the success of ‘Fall Guys: Ultimate Knockout’ was ‘way, way beyond anything we could’ve hoped for.’
PHOTO: MEDIATONIC/DEVOLVER DIGITAL
In a matter of weeks, the game became the most downloaded ever on Sony’s PlayStation Plus game-subscription service.
“The initial success was way, way beyond anything we could’ve hoped for,” said Mr. Bailey, adding that live-streaming likely made it “a way bigger success” than it otherwise would have been. The family-friendly nature of “Fall Guys” also likely played a role in its fast growth through the health crisis, he said. “It’s a bit of positivity at a time when people have had enough.”
The industry is still fiercely competitive, with the biggest moneymaking games concentrated among just a handful of publishers. Roughly 24,500 new games were added to Apple Inc. and Google’s app stores each month in the first half of 2020, yet the top 1% of game publishers world-wide took home 92% of revenue during that time, according to app-analytics firm Sensor Tower Inc.
Apple and Alphabet’s Google in August. The tech giants pulled the hit survival game from their app marketplaces after Epic introduced an unauthorized in-app payment system to it that circumvented the 30% commission they charge on sales of virtual goods. Epic has been rallying support from other app developers to lodge complaints against Apple and Google for what it describes as unfair business practices.
Apple and Google have defended how they operate their app stores.
Success can be elusive even for companies flush with cash. In early October, Amazon pulled the plug on its science-fiction shooter game “Crucible” that it had released in May, after it failed to attract an audience. In 2018, it canceled a fantasy brawler title called “Breakaway.” The company began making games in 2015 and has yet to put out a hit. A spokesman for Amazon declined to comment.
Companies in recent years have spent billions of dollars on making their gaming products more accessible and alluring, from the ability to play in large groups online to creating visual experiences rivaling other media. Those changes also have enabled the medium to double as a venue for movie screenings, musical performances and more. In April, Travis Scott held a concert in “Fortnite” that attracted more than 12 million attendees, all of whom got to watch the performance as if they were standing just a few feet from the rap artist.
Politicians are also tapping the industry to reach large volumes of people, with Democratic presidential nominee Joe Biden, President Trump and others ramping up efforts in recent months as they’ve had to sharply curtail traditional campaign rallies. In mid-October, Rep. Alexandria Ocasio-Cortez (D., N.Y.) streamed herself playing the murder-mystery game “Among Us” on Twitch, drawing more than 435,000 live viewers and some 5.4 million to date overall—whom she urged to vote in the presidential election.
Games are becoming “a primary domain” in which all entertainment is consumed, said Tom Ara, a partner at law firm DLA Piper whose clients include major Hollywood studios and recording artists.
Videogaming’s outsized growth this year may be tough to repeat next year, Wall Street analysts warn, especially as the pandemic has forced some game makers to delay new releases and updates to existing titles. “The transition to work-from-home had an impact across all our productions,” said Frédérick Duguet, finance chief at Assassin’s Creed publisher Ubisoft Entertainment SA, during a presentation to analysts and investors in September. “Even though we have found technical and good solutions, it still puts a significant pressure on productivity.”
Now, as coronavirus infections continue to rise in several countries, videogames are in an unprecedented position to captivate people who typically wouldn’t have as much time to dive in, according to academics who study consumer behavior.
“The pandemic has been the perfect breeding ground for the mushrooming of what was already a very large industry,” said George Loewenstein, a professor of economics and psychology at Carnegie Mellon University in Pittsburgh. Of all the boredom-squashing pastimes people have taken up since it began, from bread-baking and day trading of stocks to reinventing backyards and stooping, he said, videogames are “one of the most sticky.”
Jonathan Robins, a 26-year-old software engineer in Atlanta, just renewed his $15 monthly subscription to the role-playing game “World of Warcraft” on the urging of friends he met while playing other games. “The longer we get into quarantine, the stronger these relationships get,” he said, adding that asking a friend to join in a game is now essentially the same as asking the person to hang out. “Gaming’s become the way we communicate.”
‘The longer we get into quarantine, the stronger these relationships get,’ says Jonathan Robins of the friends he’s made playing videogames.
PHOTO: PIPER VON HOENE
Videogames are habit-forming by design, with rewards for completing tasks, customization tools and other hooks baked in. Many are updated with new maps and levels as often as weekly, and games on mobile devices commonly leverage push notifications—messages that pop up on phone and tablet homescreens—to nudge players back. Notably, games enable people to socialize with far-flung friends and family, as they can play online together while messaging each other or chatting through headsets.
“The social connection, that’s the thing that really anchors growth,” said Facebook’s head of gaming Vivek Sharma. “It’s not that your shared bond is shooting aliens. It’s a sense of adventure when you’re inside this space with somebody else.”
SHARE YOUR THOUGHTS
During the pandemic, have you started playing videogames for the first time or playing more often? Join the conversation below.
Write to Sarah E. Needleman at [email protected]
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the October 31, 2020, print edition as ‘A Golden Age of Gaming.’
The way we entertain ourselves may never be the same.
8/13/20 Andrew Ross Sorkin [email protected]
? Playing games. Video game stocks have gained more than 50 percent this year, making them an even bigger quarantine-era hit than Netflix, which has gained around 40 percent over the same time, as Bloomberg points out. All of the time people have spent with new games — many of which charge recurring subscriptions — could give the sector momentum after economies reopen, analysts say.
https://www.cfo.com/financial-performance/2020/08/zynga-rides-gaming-binge-to-record-quarter/?utm_campaign=CFOWeekly&utm_source=CFO-email&utm_medium=email&utm_content=CFOWeekly_Friday_2020-8-7&utm_term
August 6, 2020
Zynga Rides Gaming Binge to Record Quarter
“We are living in unprecedented times and more people than ever before are turning to games for entertainment and a sense of community.”
Matthew Heller
Zynga delivered a record quarter for sales and bookings as Americans sheltering at home from the coronavirus binged on video games to entertain themselves.
The social gaming giant said revenue jumped 47% to a best-ever $452 million in the second quarter while bookings rose 38% to $518 million, another record. Analysts had expected bookings of $498 million.
Zynga posted a net loss of $150 million, or 16 cents per share, after guiding for a loss of $160 million.
“We are living in unprecedented times and more people than ever before are turning to games for entertainment and a sense of community,” the company said in a letter to shareholders. “With so many of us staying at home, we saw heightened levels of player engagement, social connection and monetization in our portfolio.”
Zynga’s Empires & Puzzles, Merge Dragons!, Merge Magic! and Game of Thrones Slots Casino games were the largest drivers of revenue growth as Americans turned to social gaming experiences while sheltering in place.
“If you asked me New Year’s Eve [2019], I did not think it would happen,” Zynga CEO Frank Gibeau told MarketWatch. “But the pandemic changed that. Gaming is very resilient during economic difficulties.”
Other gaming companies including Activision Blizzard and Take-Two Interactive Software have also reported strong second-quarter results. Zynga expects the trend to continue, projecting revenue of $445 million for the third quarter.
“Live services will drive the vast majority of our topline performance, led by our Forever Franchises,” it said.
Zynga’s heavy second-quarter losses were due to its acquisitions last year of Small Giant Games and Gram Games, whose former owners are earning incremental, performance-based payouts under the terms of the deals.
“Because both units have been performing well ahead of Zynga’s expectations, the company is seeing the hefty net losses from those payouts each quarter, with Gram Games’ earn-out period running through Q2 2021 and Small Giant Games’ earn-out period running through Q4 2021,” GamesIndustry.biz said.
Zynga announced another acquisition on Wednesday, saying it would buy Istanbul-based Rollic, a fast-growing hypercasual mobile game company, for $168 million.
(Photo by Smith Collection/Gado/Getty Images)
coronavirus, earnings, Frank Gibeau, gaming, video games, Zynga
6/12/20 wsj
5/11/20 WSJ
5/6/19 OZY DAILY DOSE [email protected]
2
FAST FORWARD ‘Fortnite’ Success Sparks Arms Race Among Tech Giants
Spurred by the success of Fortnite, tech giants like Google, Apple, Microsoft and Amazon are leaping into the world of game-streaming action.
Games like Assassin’s Creed Odyssey played on a giant background screen as Google CEO Sundar Pichai and other company executives unveiled their latest products in March. Stadia, a new game-streaming platform, will allow people to smoothly stream blockbuster games to smartphones, tablets, PCs and other devices running Google’s Chrome browser or YouTube. Pichai promised a “new games experience.” But his was only the latest shot fired in a battle royal that’s brewing over the future of gaming.
READ MORE
https://www.cfo.com/financial-performance/2019/06/gamestop-shares-drop-29-after-dividend-halt/?utm_campaign=CFOWeekly&utm_source=CFO-email&utm_medium=email&utm_content=CFOWeekly_Friday_2019-6-7&utm_term
Financial Performance
June 5, 2019
GameStop Shares Drop 29% After Dividend Halt
The video game retailer will save about $157 million a year by eliminating the dividend as it struggles with shrinking profits
Matthew Heller
GameStop shares plunged in extended trading Tuesday after the struggling video game retailer reported another tough quarter and halted its dividend.
GameStop’s revenue fell 13.3% in the first quarter to $1.5 billion and comparable store sales dropped 10.3% amid slowing demand for video games. Analysts had expected revenue of $1.64 million.
Net income dropped to $6.8 million, or 7 cents per share, in the quarter, from $28.2 million, or 28 cents per share, a year earlier.
Chief Financial Officer Rob Lloyd said GameStop was caught in a “console transition period” as consumers postponed purchases in anticipation of the release of new versions from Sony and Microsoft.
Read More
But the company also announced it had terminated its quarterly dividend, a move that will save about $157 million a year, besides helping to reduce its nearly $500 million debt burden.
In the extended session, Game Stop shares tumbled 29% to $5.50. It was the second time this year that the stock has fallen more than 25% in a day.
“While GME said the dividend elimination would provide flexibility to drive value creation for shareholders and transform GME for the future, [the first-quarter] results and intensifying competition from Apple Arcade and Alphabet’s Stadia suggest it may be game over,” CFRA Research analyst Camilla Yanushevsky said.
As Reuters reports, GameStop “has been struggling with shrinking profits as consumers shift to downloadable videogames instead of buying physical versions from stores” and also “faces a major threat from the rising advent of game streaming, with technology giants like Alphabet Inc’s Google, Microsoft and others getting into the still nascent space.”
In the first quarter, the company had weaker results in almost every category, with new hardware sales down 35%, new software sales down 4.3%, and preowned game sales down 20.3%.
GameStop’s new CEO, George Sherman, said he has been “working closely with the team to improve our operational and financial performance, addressing the challenges that have impacted our results, and execute both deliberately and with urgency.”
But Wccftech said turning around the company “will not be an easy task with their core businesses depleting annually.”
https://www.wsj.com/articles/the-only-thing-the-smart-money-is-smart-about-11562941801
THE INTELLIGENT INVESTOR
The Only Thing the Smart Money Is Smart About
Professional investors are prone to the same mistakes as mom-and-pop types. They just get paid to make them.
By
Jason Zweig
July 12, 2019 10:30 am ET
To err is human; to get paid for it is divine.
That could be the motto of professional portfolio managers who rack up high fees for results that a blindfolded chimpanzee would be ashamed of—if chimps could blush. Several new studies show that the so-called smart money is prone to many of the same errors as amateurs. Everyone can learn from such mistakes.
Professional investors hold stocks too long. They react erratically to stock splits. They may even buy one stock when they intended to purchase a different one—almost as often as supposedly clueless individual investors make the same kind of blunder.
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What are the worst mistakes you’ve made as an investor? Please join the conversation below.
In a study released this week, Essentia Analytics, a London-based firm that studies portfolio and behavioral data to give investment managers feedback on their decisions, looked at whether professionals sell stocks at the right time.
Analyzing 14 years of data on more than 9,000 round-trip investments, Essentia found that managers held on to stocks well past their peak—reducing the performance contribution from those positions by an average of 0.07% from peak to final sale.
That might not sound like much. But 0.07% is more than twice the total annual expenses of popular exchange-traded index funds from iShares, Charles Schwab and Vanguard Group.
The problem, says Essentia’s head of research, Chris Woodcock, is what psychologists call the “endowment effect.” This is the automatic tendency to put a higher value on what you own than what you don’t—and to become reluctant to part with something merely because it is yours.
Therefore, he says, portfolio managers “put greater focus on positive rather than negative attributes” of the stocks they own. That leads them to minimize potential bad news and to hang on too long.
A case of mistaken identity: In 2013, when Twitter Inc. filed for its IPO, Tweeter Home Entertainment Group Inc., a bankrupt electronics retailer, rose 1,800% in a day.
Mike Ervolini, chief executive of Cabot Investment Technology, a Boston firm that seeks to help asset managers improve results, says about one-third of the $3.5 trillion in portfolios Cabot has analyzed hold on to winners too long. On average, he says, that impairs returns by about one percentage point annually—although that is “easily reversed” with better feedback on how to refine their process and judgments.
To help counteract the problem, investors can set predetermined price levels—say, a price move of 25%—at which they must re-evaluate a stock. And they should use a blank slate, asking whether they would buy the stock at the latest price if they had never owned a share.
Another new study of investors, large and small, looks at how they respond to news.
Imagine two highly similar firms with the same market capitalization, but one has a greater number of shares trading at a lower price per share. Important information—the hiring of a CEO, the introduction of a product—should move either stock by about the same percentage.
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In practice, comparable news turns out to have a bigger impact on stocks with lower share prices. It’s as if investors, instead of thinking in percentage terms, are telling themselves something along the lines of “this news is worth $1 per share.”
Professionals wouldn’t do that. Would they? “Even among firms with extremely high institutional ownership,” says Kelly Shue, a professor of finance at the Yale School of Management and co-author of the study, “the bias is still strong and significant.” That may cause stocks with low share prices to fluctuate more sharply than the facts justify.
Let’s consider another oddity. In April, tiny Zoom Technologies Inc. soared when traders bought its stock instead of Zoom Video Communications Inc., the hot initial public offering they thought they were getting. In 2013, when Twitter Inc. filed for its IPO, Tweeter Home Entertainment Group Inc., a bankrupt electronics retailer, rose 1,800% in a day.
Surely such blunders can be committed only by naive individual investors mashing away on phones or laptops.
Surely you jest.
A new study looks at more than 250 companies with similar names or tickers and estimates that 5% of their total trading volume consists of such cases of mistaken identity. Andrei Nikiforov, co-author of the research and a finance professor at the Rutgers School of Business in Camden, N.J., says he assumed individual investors must be solely responsible.
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He was wrong. Sorting the trades by size, and by whether the stock exchange identified them as originating from retail investors, showed that institutions made such trades roughly as often.
Some of that could be deliberate.
Computer-driven trading firms may be detecting a spike in trading volume when naive investors confuse one ticker or stock name for another; the machines then buy the same shares automatically to catch a further rise. Because it takes roughly a week, on average, for such stock prices to revert to normal, mechanically buying on the basis of someone else’s mistake might not be a mistake.
But that may not account for all the mistaken institutional trading, says Prof. Nikiforov. Some professional investors could be buying, say, Helmerich & Payne Inc. (ticker symbol:HP ) thinking they’re getting HP Inc. (ticker: HPQ).
In that case, however rare it might be, a cynical quip from the late Martin Whitman, founder of the Third Avenue funds, might apply: “When you use the word ‘professional’ on Wall Street, it doesn’t mean they know anything. All it means is that they do it for money.”
Write to Jason Zweig at [email protected]
Investors Are Usually Wrong. I’m One of Them.
CreditCreditT.M. Detwiler
By Jeff Sommer
• July 26, 2019
Forget about getting everything right. Most people are so consistently wrong that merely avoiding major errors is enough to set you apart from the pack.
That is the message in the latest data from Dalbar, a Massachusetts research firm that has been studying the behavior of mutual fund investors for 25 years.
Over the past year and for periods of five, 10, 20 and 30 years, the average mutual fund investor has underperformed the markets for both stocks and bonds, according to Dalbar. Bond investors have generally failed to even keep up with inflation.
In the 30 years through December 2018, for example, the average bond mutual fund investor earned 0.26 percent, annualized, compared with annual inflation of 2.49 percent, Dalbar found. Over the course of an entire generation, bond investors’ money shrank more than 2 percentage points a year in real terms.
This miserable record isn’t the bond market’s fault: The benchmark Bloomberg-Barclays Aggregate Bond Index returned 6.1 percent, annualized, over those 30 years. If you had held an index fund that simply tracked the bond market — Vanguard started such a fund in 1986 — you would have earned about 6 percent a year, fees included.
But very few people did that. I certainly didn’t pay much attention to bond index funds until about a decade ago, when I realized that I was suffering from a common malaise: I had accepted the imperfect choices and high fees imposed by so-called active mutual funds, and I had compounded those liabilities by buying and selling at the wrong times.
The Dalbar data leads to the inescapable conclusion that most investors, this one included, are bunglers: We panic and exult at the wrong moments, impairing our chances of success.
As Richard Bernstein, a former chief investment strategist at Merrill Lynch who now runs his own firm, told me, “What’s shocking is that simply by investing, most people actually made themselves poorer.” He added, “They’re just shooting themselves in the foot, over and over.”
The Dalbar results for 2018 are especially painful to contemplate. The inflation rate was 1.93 percent, so investors would have had to earn that just to tread water. Instead, the average stock fund investor lost 9.42 percent, for a gap of more than 11 percentage points.
Bond fund investors did a bit better, though they had little to brag about. Their average investments declined “only” 2.84 percent, so they lagged inflation by more than 4.7 percentage points.
Consider a few more dismal data points for stock mutual fund investors. Compared with the S&P 500, through Dec. 31, they underperformed by:
■ 5.88 percentage points, annualized, over 30 years;
■ 3.46 percentage points, annualized, over 10 years;
■ 4.35 percentage points, annualized over five years.
Most people, including me, would be better off if we gave up on being smart and stuck with a simple approach: long-term holdings of diversified, low-cost index funds, using only money we can afford to tie up for years.
“If you are going to need money soon, for retirement or to finance education or to buy a house, you shouldn’t take risks with it,” said Louis S. Harvey, Dalbar’s president. “Keep that money safe and separate. But for the rest of your money, the long-term money, stay invested in the market. Don’t do anything fancy with it, and just keep it there.”
If people are going to successfully hold investments for the long haul, they need a high degree of discipline, according to Mr. Bernstein. “You really need to put the money in a lockbox, of some sort,” he said, “and not give in to the temptation to do something that you think is smart — and that will probably turn out to be stupid.”
Bizarrely, a separate Dalbar report suggested that such a lockbox exists, and that it has had a beneficial effect. A form of investment known as a variable annuity — a blend of mutual funds and insurance — performed the lockbox function, Mr. Harvey said. Counterintuitively, Dalbar found, investors in variable annuities outperformed those who bought mutual funds, even though the annuities had much higher fees.
“I was shocked,” Mr. Harvey said. “I never would have expected that.”
Variable annuities generally impose “surrender charges” that investors must pay if they want to sell their funds before a set period of, say, 10 years. These charges and various other fees have made variable annuities the subject of repeated warnings by experts, including those at the Securities and Exchange Commission.
“Variable annuities are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early,” the commission says. “Variable annuities also involve investment risks, just as mutual funds do.”
Yet despite the extra fees and penalties — perversely, it seems, because of them — investors in variable annuities outperformed those in mutual funds over 12 months, as well as over three, five, 10, 15 and 19 years, Dalbar found.
The secret to the annuities’ success appears to be the surrender charges, Mr. Harvey said. Unless you really need the money urgently, a charge of, say, 7 percent, is likely to deter you from going ahead with a sale during a market downturn, he said. Assuming your investment is diversified, sticking with it over a long period may be a better strategy.
This isn’t an endorsement of variable annuities. Because of the fees and constraints, I don’t plan on owning one. But the discipline they impose is worth having.
In a word, I’d call it humility. Clearly, it’s time to recognize that I’m unable to predict the future.
Anticipating rough times this year, for example, I lightened the risk in my portfolio, shifting some of my stock and bond holdings into stable money market funds.
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But I did not expect the stock market to rise more than 20 percent or the bond market to rally or the Federal Reserve to prepare to cut interest rates. And so I’ve missed some of the rich returns that stocks and bonds have delivered this year.
What should I have done? Absolutely nothing. Remind me the next time I try to outsmart the markets.
Follow Jeff Sommer on Twitter: @jeffsommer.
A version of this article appears in print on July 28, 2019, Section BU, Page 5 of the New York edition with the headline: You Can’t Predict the Future. Neither Can I.. Order Reprints | Today’s Paper | Subscribe
3/20/19 NYTimes.com [email protected]
Google enters the lucrative world of gaming
The tech giant introduced a service yesterday that allows people to play high-definition games instantly over the internet. It’s hoping to lead a revolution in the $135 billion industry.
Think of it as Netflix for video games. “The new service, called Stadia, will work for anyone with a fast internet connection and a computer, phone or tablet,” Daisuke Wakabayashi and Brian Chen of the NYT write. “Users pay a subscription to access a library of games that they can immediately play, as opposed to the traditional model of paying for a disc or waiting to download a game.”
This isn’t the only game-streaming option. Sony offers one called PlayStation Now, and Microsoft plans to test something similar this year. The idea hasn’t yet hit the mainstream because streaming games is more technically demanding than streaming movies — and therefore prone to glitches.
Plenty of unanswered questions hang over the announcement. What games will be available? How much will the service cost? And more fundamentally, what is Google’s business model? None of that is clear.
But Google has not-so-secret weapons. “Using the global network of data centers that run its internet empire, it is set to unleash enough raw computing power to blow away the industry’s current way of doing things,” the FT writes, and it has “YouTube as a shop window.” Shares in Sony and Nintendo tumbled after the announcement.
More Google news: In Europe, the company is changing how it displays some search results, and is giving Android users a choice of web browser to stave off complaints — and potential fines — from antitrust regulators.
https://www.wsj.com/articles/as-videogame-market-shifts-gamestop-struggles-to-boost-sales-11546561467
As Videogame Market Shifts, GameStop Struggles to Boost Sales
With sales stagnating, retailer is looking for another CEO again and reviewing strategic alternatives
GameStop’s sales have been stuck around $9 billion for the last few years as more consumers buy games digitally. PHOTO: PATRICK T. FALLON/BLOOMBERG NEWS
3 COMMENTS
By
Patrick Thomas
Jan. 3, 2019 7:24 p.m. ET
Videogame retailer GameStop Corp. GME 1.25% is working to restructure its business as it searches for its fifth chief executive in a little over a year. But some say that to stay in the game, the retailer might be better off selling itself.
The company said last year it was reviewing its strategic alternatives.
Sales have been stuck around $9 billion for the last few years as more consumers buy games digitally, and its shares have sunk about 29% over the past year. Its challenges prompted some analysts and former company executives to suggest that the company’s best option to remain viable is to find a buyer.
“They’ve lost the interest of investors, and being public causes them to do things they might not otherwise do, like try to diversify” revenue, said Wedbush Securities analyst Michael Pachter. The best path forward for GameStop, he said, involves reducing debt, closing stores and going private.
GameStop had about $820 million in debt as of November, about half of which matures this year. Mr. Pachter also expects comparable sales to fall from the prior year, when GameStop releases its holiday-shopping season sales data later this month.
Some private-equity firms are circling. Sycamore Partners and Apollo Global Managementare bidding for the company, and a deal could be announced by mid-February, according to a person familiar with the matter.
Sycamore and Apollo declined to comment. GameStop declined to comment on sale talks but said in a statement the company is working to transform itself for the future.
The majority of revenue for GameStop, which has more than 6,000 stores, comes from sales of new and used videogames. Efforts to find other revenue sources—from acquiring streaming-technology startup Spawn Labs to mobile-phone stores—over the past decade haven’t done enough to reduce the company’s reliance on game sales.
Growth in the popularity of digital gaming and the migration of retail shopping online have weighed on GameStop’s performance in recent years. Also, hardware manufacturers likeMicrosoft Corp. and Sony Corp. have built up platforms allowing consumers to download games to their systems at higher speeds, and publishers have worked to extend the amount of time players spend in games.
“GameStop has become irrelevant in the video game market,” said Mike Hickey, an analyst at BenchMark, in a research note.
Not everyone considers a sale to be the best outcome.
GameStop could become more active in esports—competitive videogame contests—and hold tournaments at its most popular locations, said Colin Sebastian, an analyst at Baird.
“Their strength is in their loyal customer,” Mr. Sebastian said. “They are in a challenging spot, but they have, for now, retained the vast majority of their customers. That window is not going to be open forever.”
Narciso Rodriguez, a 20-year-old from Brooklyn, N.Y., said he downloads most of his games online because he doesn’t like to deal with game disks used with systems like the Sony PlayStation.
Travis Hernandez, a 24-year-old Harlem, N.Y., resident, said he buys disk games, except for Fortnite, largely from Amazon.com .
“I don’t really go to GameStop to get my games,” Mr. Hernandez said.
Former GameStop CEO Mike Mauler said the company should focus on renovating its existing stores, giving them a more-modern layout.
Mr. Mauler, who led the company’s international business for nearly a decade, was CEO for three months in 2018 before resigning for personal reasons. Mr. Mauler and the company declined to provide additional details on the departure.
Mr. Mauler also said the company should focus on selling more accessories and becoming more of a pop-culture retailer, for example, selling T-shirts and shot glasses of popular videogames like “Fortnite” and TV shows such as “Game of Thrones.”
“The key word is patience, picking a strategy and focusing on it.” Mr. Mauler said. “Without those stores, there is no GameStop.”
GameStop said in a statement it is focused on boosting sales of accessories and collectible items, and boosting its rewards program.
The company has said the game Fortnite—which has 200 million registered players—helped lift accessory sales more than 30% in the third quarter from a year earlier.
Still, sales of items like headsets accounted for about 10% of overall revenue in the first nine months of GameStop’s fiscal year, while sales of new and used videogames accounted for about 50%.
Appeared in the January 4, 2019, print edition as ‘GameStop Looks To Bolster Sales As Gaming Shifts.’
https://www.wsj.com/articles/gamestop-ceo-leaving-after-three-months-in-role-1526045842
GameStop CEO Leaves After Three Months in Role
Michael Mauler departs ‘for personal reasons,’ company says
GameStop’s CEO is leaving for personal reasons, effective immediately. PHOTO: MARIO ANZUONI/REUTERS
7 COMMENTS
By
Allison Prang
Updated May 11, 2018 10:47 a.m. ET
GameStop Corp. GME +0.64% Chief Executive Michael Mauler has left the company after only three months in his post and been replaced by former CEO Daniel DeMatteo on an interim basis, the company said Friday.
GameStop said that Mr. Mauler resigned Wednesday for personal reasons. He became CEO of the videogame retailer in early February.
Mr. Mauler’s exit makes for another CEO change at GameStop in recent months. In November, GameStop said that J. Paul Raines was leaving because of medical reasons and the company’s board appointed Mr. DeMatteo to take his place on an interim basis. Mr. Raines died in March.
GameStop said in a securities filing that Mr. Mauler leaving was “not due to any disagreement with the company regarding its financial reporting, policies or practices or any potential fraud relating thereto.”
It also said Mr. Mauler won’t be able to get severance or other separation benefits and that it has not decided on pay changes for Mr. DeMatteo.
Mr. Mauler couldn’t immediately be reached for comment Friday morning.
Mr. DeMatteo, who co-founded GameStop and served as CEO from August 2008 until June 2010, is the executive chairman of the company’s board.
Three months ago, GameStop fired two executives including its operating chief days after Mr. Mauler was named CEO.
The latest change at the top of the company will further corrode investor confidence in the retailer, Wedbush Securities analysts Michael Pachter said in an interview. Mr. Mauler’s resignation also comes as GameStop is struggling to capitalize on its move into the mobile-phone and wireless-services market.
“Investors like stability and continuity and GameStop is anything but,” Mr. Pachter said. “This one is a shocker and disruptive, and it will cause investor concern.”
Shares of GameStop fell 3.4% Friday and have fallen 48% in the past 12 months.
—Sarah E. Needleman contributed to this article.
Write to Allison Prang at [email protected]
https://www.bloomberg.com/news/articles/2018-05-11/gamestop-ceo-abruptly-steps-down-after-three-months-on-the-job
Technology
GameStop CEO Abruptly Steps Down After Three Months on Job
By
Nick Turner ,
Janet Freund, and Christopher Palmeri
May 11, 2018, 10:05 AM EDT Updated on May 11, 2018, 4:48 PM EDT
•
Company’s 70-year-old co-founder will take the helm for now
•
The move brings fresh upheaval to ailing video-game retailer
Inside a GameStop Corp. store in Kentucky, U.S.
Photographer: Luke Sharrett/Bloomberg
GME
GAMESTOP CORP-A
14.13
USD
+0.10+0.68%
GameStop Corp. Chief Executive Officer Michael Mauler abruptly stepped down after just three months on the job, bringing fresh upheaval to a retailer that’s struggling to revive growth.
The board appointed Daniel DeMatteo, GameStop’s 70-year-old co-founder, to run the business while it searches for a new leader. Mauler resigned for personal reasons, the company said, and he isn’t entitled to severance or other separation benefits.
“Given my tenure and familiarity with the company and our associates, it’s a natural step for me to assume this role and guide the business at this time while the board searches for a permanent CEO,” DeMatteo said in a statement.
Mauler’s quick exit follows another shake-up in February, when the company fired two high-ranking executives: Chief Operating Officer Tony Bartel and Executive Vice President Michael Hogan. Others have left, including human-resources head Mike Buskey, Chief Information Officer Michael Cooper and Chief Marketing Officer Randy Gier. The company said Buskey and Gier retired.
The moves follow the death of longtime CEO Paul Raines, who took a medical leave in November and died in March.
GameStop disappointed investors with its profit outlook earlier this year, extending a long slump for the stock. The shares fell anew on Friday after the CEO change, tumbling as much as 4.3 percent to $12.47.
Michael Mauler
Source: GameStop
“We were very surprised by Mauler’s resignation, particularly given the facts he had been CEO for just over three months and GameStop ‘cleaned house’ by firing Bartel and Hogan in conjunction with Mauler taking the top spot,” Anthony Chukumba, an analyst at Loop Capital Markets, said in a note. “Management turmoil is the last thing GameStop needs.”
The company, which is the largest independent retailer of video games, is struggling to adapt to a world where software is often delivered online. As part of its comeback efforts, GameStop has ramped up its e-commerce operations and added more toys and collectibles. It also acquired hundreds of AT&T wireless stores in 2016 to help reduce its dependence on video games.
In the past year, the company has been retrenching. It sold Kongregate, a mobile game publisher, and plans a sale of its Cricket prepaid wireless stores.
The management change probably won’t bring an immediate strategy change, Robert W. Baird analyst Colin Sebastian said in a note. But it may push the board to consider strategic alternatives.
The stock reaction suggests investors don’t have “much confidence in the current operations,” he said.
(Updates with terms of departure in second paragraph.)
http://ww2.cfo.com/financial-performance/2018/03/gamestop-hardware-sales-jump-45-in-q4/?utm_campaign=CFOWeekly&utm_source=CFO-email&utm_medium=email&utm_content=CFOWeekly_Friday_2018-3-30&utm_term
GameStop Hardware Sales Jump 45% in Q4
Strong demand for Nintendo Switch, PS4 Pro, and Xbox One X consoles powered the retailer’s 12.2% gain in same-store sales.
Matthew Heller
GameStop’s revenue beat analysts’ estimates for a fourth straight quarter on strong demand for hardware, particularly the Nintendo Switch console.
The world’s largest video game and gaming console retailer reported a 12.2% jump in same-store sales, topping the average estimate of a 9.32% rise.
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Total global sales increased 15.0% to $3.50 billion, with sales in GameStop’s core video game retail business rising 12.4% to $1.04 billion and sales in its hardware business leaping nearly 45% to $844 million.
Only the smaller Technology Brands division struggled, posting a 14.2% decline in sales to $219.7 million, primarily reflecting a change in AT&T’s dealer compensation structure.
“Our strong sales performance over the holiday period and throughout the fourth quarter was driven by compelling Black Friday and holiday promotions, driving growth in hardware, particularly the Nintendo Switch,” CEO Michael Mauler said in a news release.
On an earnings call, he also cited demand for the PS4 Pro and the Xbox One X consoles. “Software also increased as we improved to be the destination of choice for customer to purchase video game software for the holidays, as well as strong title launches like Call of Duty: World War II and new software for Nintendo Switch,” he added.
GameStop’s pre-owned business was down nearly 5% in 2017 compared to the prior year but Mauler said he expects Nintendo Switch components and games “will work their way into our pre-owned ecosystem in the near future.”
“Only 30 percent of our customers trade-in games, so this presents a big opportunity” for pre-owned growth, he noted.
As far as Technology Brands, Mauler said AT&T is “a good partner and we are in discussions with them to improve the compensation plan. Both partners want the other to succeed and I believe we will find improvements that will be a win-win for both companies.”
GameStop reported a net loss of $105.9 million, or $1.04 per share, in the fourth quarter ended but excluding items, it earned $2.02 per share, beating analysts average estimate of $1.97 per share.
Related
GameStop Shares Plunge on 13% Sales Decline
PlayStation Powers Sony to Slim Q1 Profit
https://www.cnbc.com/2017/03/24/shares-of-game-stop-plummet-on-reports-of-lost-sales.html
GameStop shares plummet on reports of lost sales
Lauren Thomas | @laurenthomasx3
Published 10:16 AM ET Fri, 24 March 2017
Scott Mlyn | CNBC
Shares of GameStop fell more than 13 percent Friday after the company reported sales declines in almost all of its segments during the fourth quarter
GameStop reported Thursday that hardware sales declined 29.1 percent, and new software sales fell by 19.3 percent for the quarter — two categories that were once key in boosting revenue for the retailer.
The Texas-based company said fiscal fourth-quarter global sales decreased 13.6 percent to $3.05 billion, while consolidated comparable sales — a metric monitored closely for retail companies by Wall Street — declined 16.3 percent, falling in line with analysts’ estimates, according to FactSet.
In 2017, GameStop said it expects to close between 2 to 3 percent of its global store footprint, a sign that traffic at its brick-and-mortar locations has slowed. The company also said Thursday that its video game category has become “weak.”
“The fourth quarter [ended Jan. 28] was significantly impacted by … aggressive console promotions by other retailers on Thanksgiving [Day] and Black Friday,” the company wrote in its earnings release. GameStop is facing more competition from big-box retailers such as Target and Wal-Mart, and e-commerce giant Amazon.
Moving forward, GameStop will no longer provide quarterly earnings nor same-store-sales guidance, Chief Financial Officer Rob Lloyd said in a statement. “We believe that providing only annual guidance will reduce investor distraction as we continue to diversify the company and seek to maximize long-term shareholder value,” Lloyd said.
On Thursday, GameStop reported adjusted quarterly earnings of $2.38 per share, topping a Thomson Reuters estimate of $2.28, but coming in 2 cents lower than the same period one year ago.
With Friday’s steep declines, shares of GameStop are down more than 30 percent over the past 12 months and are down more than 18 percent year-to-date.
Shares closed the down around $20 per share, far below an all-time intraday high of $63.77 reached in 2007 but nowhere near an all-time intraday low of $3.75 per share, which occurred in 2003.
GameStop year-to-date performance
Source: FactSet
Correction: This story was revised to correct the spelling of Rob Lloyd’s last name.
Lauren ThomasNews Associate for CNBC
RELATED SECURITIES
Symbol Price Change %Change
GME
19.15 -0.25 -1.29%
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https://www.wsj.com/articles/how-gamestop-can-stay-in-the-game-1458764574
How GameStop Can Stay in the Game
A low valuation buys GameStop time to diversify, but videogames will remain crucial to its business
A GameStop store in New York. The company reports quarterly results Thursday. PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS
By
Dan Gallagher
March 23, 2016 4:22 p.m. ET
3 COMMENTS
The videogame business has gotten more complex in recent years, as has GameStop .GME 1.85%
In the fiscal year ended Jan. 30, GameStop actually reduced its overall retail videogame store count by 125 locations, but expanded by 553 stores its Technology Brands segment that sells mobile phones and other electronics. The latter is critical to efforts to wean the retailer from the legacy videogame business that—with each passing year—sees more action move online.
Still, GameStop’s electronics segment comprised only about 6% of total sales for the nine months ended Oct. 31. So it remains a side business. GameStop needs gamers to come to its stores for the foreseeable future.
That gets more challenging in the digital age, though GameStop isn’t exactly Tower Records redux. Annual sales have mostly stayed just above the $9 billion mark since 2010. GameStop’s fiscal fourth-quarter results due Thursday should hew to that trend, as indicated by figures preannounced in connection with a debt offering earlier this month.
The company said sales for the quarter would be in the range of $3.5 billion to $3.55 billion, with earnings per share of $2.19 to $2.25. That compares with sales of $3.5 billion and earnings of $2.23 per share in the same period a year earlier.
And the coming months could provide opportunity. Virtual-reality headsets are coming to the market, and there are rumors Nintendo may launch a new console.
Such products could draw in shoppers, though VR sales will likely be limited by initially high prices. And while downloads take up a growing share of new game launches, big titles still spark disc sales around the holidays. That could buy time as the company continues its pivot toward a more diversified business.
Meanwhile, the stock is priced like a used videogame. It is down by one-quarter over the past year, and at seven times forward earnings, it is the cheapest among retailers that compete with it and also the videogame-publishers who supply it.
Granted, there is little GameStop can do to stop or slow the shift to downloads. But it has the time, and room, to find a new way to play the game.
Appeared in the Mar. 24, 2016, print edition as ‘GameStop Can Stay in Game.’
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http://www.wsj.com/articles/gamestop-posts-decline-in-revenue-profit-1464297806
GameStop Posts Decline in Revenue, Profit
New videogame software sales fell 7.6%
ENLARGE
For the current quarter, Gamestop said it expects same-store sales to fall between 4% and 7% with earnings on a per-share basis between 23 cents and 30 cents. PHOTO: RICHARD B. LEVINE/ZUMA PRESS
By
EZEQUIEL MINAYA
May 26, 2016 5:23 p.m. ET
0 COMMENTS
GameStop Inc. reported an 11% drop in earnings in the latest quarter and provided a lackluster profit outlook, as the videogame retailer races to keep pace in an increasingly digital market in which games are downloaded.
Signs of struggle in its legacy business were visible in the latest three-month period ended April 30. New videogame software sales fell 7.6%, while sales of preowned and value games slipped 3.7%. Together, the two categories account for 58% of total sales.
New videogame hardware sales also dropped 28.8%, though sales of virtual-reality headsets or any new game-console releases could help offset the sag in upcoming quarters.
The company’s mobile and consumer electronics category, which GameStop hopes will grow to offset losses linked to game-disks sales, rose a robust 40%, but the category made up just under 10% of total sales.
Shares of the company, down about 25% over the past year, dropped more than 8% to $27.55 in after-hours trading.
For the current quarter, the company said it expects same-store sales to fall between 4% and 7% with earnings on a per-share basis between 23 cents and 30 cents. Analysts surveyed by Thomson Reuters expected earnings of 33 cents.
The company has been trying to become less dependent on its legacy videogame business. The retailer in the past fiscal year reduced its videogame store count by 125 locations but expanded by 553 stores its Technology Brands segment, which sells mobile phones and other electronics.
Company executives have said they would likely keep closing GameStop locations at a 2% rate. But the transition is a work in progress with electronics comprising only a fraction of total sales for the foreseeable future.
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Over all, for the latest quarter, GameStop reported a profit of $65.8 million, or 63 cents a share, compared with a year-earlier profit of $73.8 million, or 68 cents a share. Excluding certain items, profit per share sagged to 66 cents from 68 cents a year earlier.
Revenue slipped 4.3% to $1.97 billion. The Grapevine, Texas, company had said overall sales would fall between 4% and 7% in the latest quarter.
Same-store sales fell 6.2%, better than the company’s estimate for a decline between 7% and 9%. The decline was more accelerated in the U.S., where same-store sales slipped 6.6%, compared with a 4.9% slide internationally.
Analysts surveyed by Thomson Reuters had expected earnings of 62 cents a share and revenue of $1.97 billion.
Write to Ezequiel Minaya at [email protected]
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http://www.wsj.com/articles/gamestop-gives-downbeat-guidance-on-sales-and-earnings-1458853750
GameStop Gives Downbeat Financial Guidance
Despite fourth-quarter profit that exceed expectations, trend toward downloads is hurting videogame retailer
ENLARGE
The videogame retailer has been expanding revenue by moving into digital downloads and sales of collectibles at namesake outlets.ILLUSTRATION: BLOOMBERG
By
DREW FITZGERALD and
EZEQUIEL MINAYA
Updated March 24, 2016 6:02 p.m. ET
0 COMMENTS
GameStop Inc. on Thursday posted better-than-expected earnings for its fourth quarter but issued dour guidance for the current three-month period and fiscal year, as the videogame retailer undergoes a rocky transformation amid the growing prevalence of product downloads.
Shares of the videogame retailer, which have fallen 26% over the past year, fell 7.8% after hours to $27.84
The Grapevine, Texas, company said it expects overall sales to fall between 4% and 7% in the current quarter, with same-store sales slipping between 9% and 7%. GameStop said it sees earnings per share of between 58 cents and 63 cents.
Analysts surveyed by Thomson Reuters had expected overall sales to rise 1% and earnings of 71 cents a share.
For the 2016 fiscal year, the company expects per-share earnings of between $3.90 and $4.05 and revenue to be flat to up 3%. Analysts expect earnings of $4.08 a share and a revenue increase of 3%.
RELATED
• How GameStop Can Stay in the Game(March 23)
• GameStop’s Holiday Sales Fuel Concerns About Downloads (Jan. 12)
• Is GameStop’s Future Played Out?(Nov. 23)
GameStop spent the past year bulking up its other store brands, which include Simply Mac for Apple Inc. electronics and Spring Mobile, an AT&T Inc. wireless phone reseller.
That division added 202 stores during the latest quarter and ended January with more than 1,000 locations, compared with about 6,000 GameStop-brand stores.
Chief Executive Paul Raines said the company would probably keep closing GameStop locations at the same 2% rate it has been booking over the past year, though he said the brand itself is becoming more profitable.
“We’ve created two new billion-dollar businesses inside the GameStop stores,” Mr. Raines said, referring to the digital downloads and collectibles sold at physical stores. “Counter to what the market believes, GameStop, the one that’s supposed to be evaporating and under pressure, is not under pressure at all.”
The company’s technology brands segment is critical to GameStop’s efforts to wean itself off the legacy videogame business that, with each passing year, sees more action move online.
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Overall, for the period ended Jan. 30, GameStop reported a profit of $247.8 million, or $2.36 a share, compared with a year-earlier profit of $244.1 million, or $2.23 a share. Excluding certain items, profit rose to an adjusted $2.40 a share from $2.15 a year earlier.
Revenue rose 1.4% to $3.52 billion.
The company had earlier said sales for the quarter would be in the range of $3.5 billion to $3.55 billion, with earnings per share of $2.19 to $2.25.
Sales at comparable stores grew 3.1%. Same-store sales were expected to grow 2.5% to 4%.
Write to Drew FitzGerald at [email protected] and Ezequiel Minaya [email protected]
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http://www.wsj.com/articles/hong-kong-hedge-fund-manager-wins-big-at-nintendo-1468320199?tesla=y
Monster Bet on ‘Pokémon Go’ to Pay Off for Hong Kong Fund Manager
Oasis Management, which long urged Nintendo to go mobile, stands to make tens of millions of dollars from craze
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Oasis Management’s Seth Fischer, here last month, launched his public campaign for a shift in strategy at Nintendo back in 2013. PHOTO:JUSTIN CHIN/BLOOMBERG NEWS
By
RICK CAREW
July 12, 2016 6:43 a.m. ET
4 COMMENTS
A monster bet by a Hong Kong-based hedge-fund manager is paying off with the “Pokémon Go” sensation.
Seth Fischer’s Oasis Management Co. stands to make tens of millions of dollars after a three-year campaign to push Nintendo Co. into mobile gaming. The success of “Pokémon Go,” a new smartphone game part-owned by Nintendo, has boosted the Japanese company’s shares by more than 50% in the past week, adding over $10 billion to its market capitalization.
Mr. Fischer, who had about 4% of his $1 billion fund in Nintendo at the end of June, is one of a growing cadre of foreign activist investors making money by pushing Japan’s sleepy corporate sector to be more shareholder-friendly.
U.S.-style activist campaigns like Mr. Fischer’s, which include critical letters, public presentations of alternative strategies and private prodding of management teams, are still uncommon in Japan, where news that a company is creating an investor-relations department has been known to send its stock soaring.
However, under Prime Minister Shinzo Abe, Japan’s government has recently encouraged companies to become more responsive to shareholders.
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There are signs that activist investors are finding more success in Japan of late. Brash New York hedge-fund Third Point LLC, headed by Daniel Loeb, in April won a boardroom battle to replace the 83-year-old chief of the 7-Eleven empire, owned by Japan’s Seven & i Holdings Co. Mr. Loeb wanted the company to shed its big-box retailers in Japan and focus on its core convenience-store franchise globally. Mr. Loeb had earlier urged changes at Japanese entertainment giant Sony Corp. He was rebuffed, but profitably sold his shares in Sony.
Nintendo said its push into mobile gaming is part of its own strategy.
“Our decision to tap into the smartphone game [market] was not due to any particular advice from any particular investors,” a Nintendo spokesman told The Wall Street Journal in response to questions about Oasis and the role of outside shareholders.
Mr. Fischer, 44, launched his public campaign for a shift in strategy at Nintendo with a speech at the Hong Kong offshoot of the high-profile annual Sohn Conference on June 6, 2013, after building an initial stake in the company.
Mr. Fischer urged Nintendo to evolve from its console-focused business toward mobile games. He estimated a credible move into mobile gaming could boost the company’s share price by between 97% and 240%. At the time the company’s cash balance accounted for two-thirds of its market value, which had been dragged down by a drop in sales.
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The opportunity for Nintendo to move into mobile gaming was “so obvious, but nobody was talking about it,” Mr. Fischer said in an interview on Tuesday.
“It’s a different mentality from Silicon Valley, where people have their quirks but at the end of the day tend to act rational,” he said. “In Japan analysts are looking at what the companies are doing and not what they could do.”
He says that Nintendo’s management had been too focused on protecting the experience of its hard-core existing gamers by selling its games through the company’s specialized hardware—forsaking a much broader potential audience.
In a February 2014 letter to Nintendo’s then-chief executive, Mr. Fischer argued “the same people who spent hours playing ‘Super Mario,’ ‘Donkey Kong,’ and ‘Legend of Zelda’ as children are now a demographic whose engagement on the smartphone is valued by the market at well over $100 billion.”
“Pokémon Go” was developed by Tokyo-based Pokémon Co.—which is 32%-owned by Nintendo—and California-based Google spinout Niantic Inc. Nintendo owns an undisclosed stake in Niantic.
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A new smartphone game that has fans chasing Pokémon characters through real-life city streets has become a hit. Photo: Pokémon Go
The game lets players scour real-world locations for characters such as chubby yellow monster Pikachu. “Pokémon Go” is free to download, but offers in-app purchases to help players capture the Pokémon creatures. Mr. Fischer estimates that between 40% and 50% of revenue from the game will flow through to Nintendo.
Mr. Fischer won’t be the only big winner. Los Angeles-based Capital Group Cos. owns 22% of Nintendo’s stock, according to data from S&P Global Market Intelligence. Capital Group declined to comment. Other global investors in Nintendo include San Francisco-based “value-oriented” mutual-fund manager Dodge & Cox and BlackRock Inc.
Mr. Fischer, who invests nearly two-thirds of his $1 billion fund in Japanese companies, is no stranger to activist campaigns. He has launched a campaign to get Japanese electronics maker Kyocera Corp. to return more cash to shareholders and been an active investor in U.S.-based toy maker Jakks Pacific Inc.
Oasis Management was founded in 2002 by Mr. Fischer after working at Highbridge Capital Management LLC. The firm’s flagship funds have generated net annualized returns of 18% through the end of 2015, according to its website.
—Takashi Mochizuki contributed to this article.
Write to Rick Carew at [email protected]
7/12/16 [email protected]
VENTURE CAPITAL »
Pokémon Go Brings Augmented Reality to a Mass Audience Pokémon Go is the work of a start-up, Niantic, which was created inside Google and spun out of the company last year.
• NYT » | POKÉMON PLAYERS TAKE THEIR HUNT TO THE STREETS OF NEW YORK
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http://www.wsj.com/articles/how-gamestop-can-stay-in-the-game-1458764574
• STOCKS
• AHEAD OF THE TAPE
How GameStop Can Stay in the Game
A low valuation buys GameStop time to diversify, but videogames will remain crucial to its business
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A GameStop store in New York. The company reports quarterly results Thursday. PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS
By
DAN GALLAGHER
March 23, 2016 4:22 p.m. ET
3 COMMENTS
The videogame business has gotten more complex in recent years, as has GameStop.
In the fiscal year ended Jan. 30, GameStop actually reduced its overall retail videogame store count by 125 locations, but expanded by 553 stores its Technology Brands segment that sells mobile phones and other electronics. The latter is critical to efforts to wean the retailer from the legacy videogame business that—with each passing year—sees more action move online.
Still, GameStop’s electronics segment comprised only about 6% of total sales for the nine months ended Oct. 31. So it remains a side business. GameStop needs gamers to come to its stores for the foreseeable future.
That gets more challenging in the digital age, though GameStop isn’t exactly Tower Records redux. Annual sales have mostly stayed just above the $9 billion mark since 2010. GameStop’s fiscal fourth-quarter results due Thursday should hew to that trend, as indicated by figures preannounced in connection with a debt offering earlier this month.
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The company said sales for the quarter would be in the range of $3.5 billion to $3.55 billion, with earnings per share of $2.19 to $2.25. That compares with sales of $3.5 billion and earnings of $2.23 per share in the same period a year earlier.
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And the coming months could provide opportunity. Virtual-reality headsets are coming to the market, and there are rumors Nintendo may launch a new console.
Such products could draw in shoppers, though VR sales will likely be limited by initially high prices. And while downloads take up a growing share of new game launches, big titles still spark disc sales around the holidays. That could buy time as the company continues its pivot toward a more diversified business.
Meanwhile, the stock is priced like a used videogame. It is down by one-quarter over the past year, and at seven times forward earnings, it is the cheapest among retailers that compete with it and also the videogame-publishers who supply it.
Granted, there is little GameStop can do to stop or slow the shift to downloads. But it has the time, and room, to find a new way to play the game.
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8/3/21 Andrew Ross Sorkin [email protected]
Penguin Random House
Three takeaways from a new history of Tesla
A new book, “Power Play: Tesla, Elon Musk and the Bet of the Century” by Tim Higgins of The Wall Street Journal, chronicles Tesla’s journey from near financial ruin to seller of the most popular electric car in the world. Musk has already called the book, out today, “false and boring,” but Walter Isaacson had a more positive take in The Times’s review. Here are three things in the book that caught our eye:
The book claims that Musk (maybe) asked Tim Cook to make him C.E.O. of Apple. At the time, Tesla was struggling with quality problems in the Model X and Apple with its own electric-car program. Cook tested the waters about an acquisition. Musk said he would only consider a deal in which he’d be C.E.O. — not of Tesla, but of Apple. Cook responded with an expletive, and hung up the phone. On Twitter, Musk said he had never spoken with Cook. The book itself is cautious in relaying the exchange, recounting it as a story that Musk told others. “Whether or not this was an accurate recounting, it’s hard to imagine Musk was serious about wanting to be C.E.O. of Apple,” Higgins writes. “Rather, the story played into Musk’s vision of Tesla becoming on par with Apple.”
Musk often clashed with executives. In one of the book’s most vivid examples, Musk fired Tesla’s deputy head of manufacturing, Josh Ensign, after a worker demonstrated how to fix an irritating screeching sound made by the Model X’s windows. The factory had yet to make a Model X flawlessly, and was under enormous pressure because of optimistic production goals Musk had shared with investors. “Musk erupted at Ensign: How the [expletive] do you have somebody in your organization that knows the solution?” Higgins writes. Ensign did not want to embarrass the worker by telling Musk that engineers had already tested the solution and found it to be only a temporary fix.
Tesla has tried to get Musk to stop tweeting. “Power Play” vividly recounts Musk’s 2018 public meltdown beginning with his attempt to intervene in the rescue of a boy’s soccer team trapped in a flooded cave in Thailand and ending with him smoking weed on Joe Rogan’s podcast. (Here’s the excerpt in Vanity Fair.) An internal memo fretted that investors saw Musk’s tweets as proof that he was “distracted from Tesla’s main business,” and staff suggested a break from Twitter. Shortly thereafter, Musk tweeted that he was considering taking Tesla private, setting off an S.E.C. investigation. “A less brash executive might have been chastened,” Higgins writes. “But amid all of this, Musk returned to Twitter.”
CFO Weekly Briefing [email protected] 8/2/21
Tesla Beats $1B, Posts Record Profit in Q2
Tesla was profitable without regulatory credits, which it sells to rival automakers, for the first time since the end of 2019.
Andrew Ross Sorkin [email protected] 4/27/21
Tesla’s latest earnings report gave investors reason to celebrate — and worry.Hannibal Hanschke/Reuters
Tesla, the emission credits and crypto company
The electric carmaker posted record quarterly earnings yesterday, beating Wall Street forecasts. But a closer look shows that its core business — you know, making vehicles — wasn’t the only story, and that might be why the company’s stock fell in aftermarket trading.
Tesla reported a quarterly profit of $438 million, its highest ever. But financial maneuvers flattered this number:
Tesla’s $1.5 billion purchase of Bitcoin, and subsequent sale of a chunk of its holdings, led to a $101 million accounting boost. Bitcoin “so far has proven to be a good decision,” Zach Kirkhorn, Tesla’s C.F.O. (no, we’re not using his other title), told analysts yesterday, adding that the company would continue to invest in crypto as a place to park excess cash. (The company’s holdings will also grow as customers start buying cars with Bitcoin.)
Tesla also made $518 million from selling emissions credits to other carmakers, up from $354 million a year ago. This has been a steady, high-margin side hustle for Tesla as it ramps up auto production.
The business of selling cars is headed in the right direction, but faces supply problems. Vehicle deliveries came to 184,000, ahead of expectations, even as sales of Model S and X cars fell ahead of lineup revamps. But Elon Musk, Tesla’s C.E.O. (or, fine, “Technoking,” if we must), conceded that problems in sourcing components — notably, the global shortage of computer chips — had led to “some of the most difficult supply-chain challenges that we’ve ever experienced.” The real pinch may come in the second quarter, so it’s a good thing that Tesla has so many other businesses to fall back on.
Safety issues could be a bigger, long-term risk. Tesla is still dealing with an investigation into a fatal crash in Texas this month involving one of its vehicles, in which the police say no one was behind the wheel. Tesla’s chief engineer cited new evidence yesterday that potentially contradicts that claim. And the company is trying to put out a P.R. crisis in China, after the state news media accused it of “being arrogant” in its handling of a customer’s complaints about her car’s brakes.
“The main line in the sand now for the bulls and bears is not the near-term chip shortage,” Dan Ives of Wedbush wrote in a research note this morning. More important to Tesla’s finances is its ability to grow in China, he wrote, which could account for 40 percent of its deliveries by next year.
1/8/21 Andrew Ross Sorkin [email protected]
The $195 billion man
Elon Musk is now the richest person in the world, according to the Bloomberg Billionaires Index, taking the title from Jeff Bezos. To be fair, they’re both worth nearly $200 billion, so who’s counting?
Tesla’s stock price surge is what put Mr. Musk over the top. The electric car maker’s shares have risen more than 700 percent over the past year. They now trade at a price-to-earnings ratio of around 1,600, versus 30 for the S&P 500 and 20 for rival auto companies like G.M.
His unusual pay package was very well timed. Recall that an audacious compensation plan, approved in mid-2018, gives Mr. Musk big chunks of shares tied to “a series of jaw-dropping milestones based on the company’s market value and operations,” as we wrote at the time. Tesla was worth around $60 billion back then, and experts considered the plan’s upper limit, a market cap of $650 billion, “laughably impossible,” since it would have made Tesla one of the five largest companies in the U.S.
You can guess what happened: Tesla just passed Facebook to become the fifth-most-valuable listed company on Wall Street, at more than $770 billion. On what this meant for his net worth, Mr. Musk said yesterday: “How strange.”
9/1/20
? Tesla’s irrational exuberance. There are many reasons that Tesla is one of the hottest stocks around, but the 13 percent gain yesterday after news of its 5-for-1 stock split — adding more than $30 billion in market capitalization — is one of the weakest. Nothing about the business has changed, and although it makes buying a single share more accessible, most brokers, including Robinhood, already allow investors to trade fractional shares.
8/12/20 The New York Times [email protected]
Tesla announced a 5-for-1 split, and its stock soared. Elon Musk’s electric-car maker said the split would make its turbocharged shares more accessible to small investors. The move has no effect on the company’s value, but the stock still jumped sharply in after-hours trading, continuing the relentless rise that has seen it gain more than 200 percent so far this year.
7/23/20 The New York Times [email protected]
Business
Tesla Turns a Profit in a Pandemic-Squeezed Quarter
By Neal E. Boudette, Peter Eavis and Matt Phillips
The result was achieved “despite tremendous difficulties,” said the chief executive, Elon Musk, including a plant shutdown and lower sales.
The Tesla C.E.O. has plenty of reasons to be happy at the moment. Agence France-Presse — Getty Images
Tesla’s ‘super’ quarter
Elon Musk’s electric-car maker posted an unexpected $104 million profit in the second quarter, defying expectations of a loss. The company has never reported four consecutive profitable quarters before.
Welcome to the S&P 500? Tesla, whose market cap is now around $300 billion, belongs in the blue-chip stock index based on size — it’s the 12th-largest U.S. company by market value — but until now, it hadn’t satisfied requirements for consistent profitability. Speculation that it will soon be admitted to the club, which would force index-tracking funds to buy the stock, helped push the company’s turbocharged shares even higher in after-hours trading. (Over the past year, Tesla’s shares have risen a nearly unbelievable 523 percent.)
It’s not all about cars. Tesla sold around 91,000 vehicles in its latest quarter, down 5 percent from the same time last year. Its profits were hugely lifted by sales of emissions credits to other automakers, which were nearly four times higher than in the same quarter last year.
Tesla’s feeling pretty super right now. That was the common theme to Mr. Musk’s comments to analysts:
• On factory automation: “It’s super-exciting.”
• On human workers: “We want to be super-respectful of people’s labor.”
• On its grid-connected battery technology: “It just ensures that things are super-smooth”
• On the Model Y’s rear-body casting: “I’m super-excited by this.”
• On generating profits: “We need to not go bankrupt, obviously, that’s important … But we’re not trying to be super-profitable either.”
1/30/20 The New York Times [email protected]
Elon Musk John Raoux/Associated Press
Tesla has 105 million more reasons to celebrate
The electric carmaker reported a $105 million quarterly profit yesterday, giving boosters of the company more occasion to crow.
“The numbers suggest that Tesla has overcome the problems that plagued it in the first half of last year, when it lost more than $1 billion and scrambled to raise capital,” writes Niraj Chokshi of the NYT.
And production of its Model Y compact S.U.V. was ahead of schedule, the company said. Deliveries of the vehicle would begin in the spring, at least three months earlier than expected.
Shares in Tesla rose 12 percent in after-hours trading. The company’s market value is currently $104.7 billion, more than double that of traditional rivals like G.M. and BMW. (It also puts Elon Musk closer to fulfilling the requirements for a big bonus.)
Mr. Musk taunted critics yesterday, saying, “A lot of retail investors have deeper and more accurate insights than many of the big institutional investors.”
But there’s still plenty of fodder for doubters:
• Charley Grant of Heard on the Street notes that revenue for the quarter grew just 2 percent from the same time a year ago, while operating income fell 13 percent.
• And Tesla warned that car production would outstrip supply this year.
1/9/20 The New York Times [email protected]
Elon Musk Aly Song/Reuters
Tesla sets a new market value high
The electric carmaker’s stock has surged in the early days of 2020. The end result: Its market capitalization of roughly $85 billion is now the highest ever for an American auto company.
That’s above the previous peak of $80.8 billion set by Ford in 1999. Ford’s market value as of yesterday was $36.7 billion, while G.M.’s was $49.5 billion.
It’s a partial vindication for Tesla after a challenging few years that included questions about its ability to deliver cars and a legal battle between the S.E.C. and Elon Musk, the company’s C.E.O.
But there are plenty of caveats. Adjusting for inflation, Ford’s market value peak would be about $122 billion in today’s dollars. And overseas carmakers like Toyota are still bigger by any measure.
Tesla also faces many challenges. It has never turned an annual profit, and it is highly dependent on sales in overseas markets, particularly China.
1/4/20 The New York Times [email protected]
Tesla Reports Record Output as Elon Musk Achieves Goal
By NIRAJ CHOKSHI
The electric-car maker ended a volatile year with a 50 percent jump in deliveries, sending its shares to a new high.
https://www.wsj.com/articles/tesla-tech-chiefs-exit-is-latest-high-profile-departure-11564052982
Tesla Tech Chief’s Exit Is Latest High-Profile Departure
Shares fell after electric-auto maker reported bigger-than-expected second-quarter loss
JB Straubel, center, seen alongside Elon Musk and Panasonic’s Yoshi Yamada, is leaving Tesla. PHOTO: JOSEPH WHITE/REUTERS
By
Tim Higgins
Updated July 25, 2019 6:28 pm ET
Tesla Inc. shares suffered one of their biggest retreats since the company went public in 2010, in the wake of a disappointing quarterly earnings report and the announcement that the longtime chief technology officer who helped create the company is leaving.
The stock dropped 13.61% Thursday to $228.82 a share after Chief Executive Elon Musk said Wednesday that JB Straubel, who has served as Tesla’s technology chief since 2005, would vacate the post and take on a senior advisory role. His responsibilities are being taken over by Drew Baglino, another longtime Tesla executive, Mr. Musk told analysts.
Mr. Baglino in recent weeks had taken on a higher-profile role within Tesla, triggering speculation among company observers that Mr. Straubel might be leaving.
Tesla reported a bigger-than-expected second-quarter loss, unnerving investors. The company reiterated its previous guidance that it would deliver 360,000 to 400,000 vehicles this year but warned it would emphasize expanding its production capacity and model lineup over increasing the bottom line.
“The soft gross margin profile will be a gut punch to the bulls hoping for much-needed good news on this front,” Wedbush Securities analyst Daniel Ives said. The company’s reiteration of its delivery guidance “was a head scratcher since the pure math and demand trajectory makes this an Everest-like uphill battle,” he said.
Several analysts cut their price targets on the stock after the disappointing results. UBSsaid in a note that Tesla “will not be profitable in the mid-term.”
The departure of the 43-year-old Mr. Straubel follows a string of other high-profile exits at Tesla in the past few years as the company struggled to bring its Model 3 compact car to market.
In January, Tesla surprised investors when it announced during another earnings call that longtime Chief Financial Officer Deepak Ahuja was leaving the company.
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Mr. Straubel outlasted Martin Eberhard, another founder of Tesla. Mr. Eberhard ran Tesla in the early years, before being ousted in 2007 and eventually replaced as chief executive by Mr. Musk, who had helped fund the startup.
Piper Jaffray analyst Alexander Potter called Mr. Straubel “probably the second-most-important person” at Tesla and said his departure is likely to rattle investors.
Gene Berdichevsky, an early Tesla employee who later co-founded a battery technology company called Sila Nanotechnologies Inc., said “there would be no Tesla as it is today without JB.”
Mr. Straubel made the decision to step down on his own as the company is maturing into a phase that needs more operational focus while he seems happiest working on new projects, said a person familiar with the situation.
“I’m not disappearing and I just want to make sure that people understand that this is not some lack of confidence in the company or the team,” Mr. Straubel told analysts.
Tesla has a long history of executive turnover. Co-founder Marc Tarpenning left ahead of Roadster production in 2008, vice president of vehicle engineering Peter Rawlinson departed ahead of Model S production in 2012, and former engineering chief Doug Field left as the Model 3 was ramped up in 2018.YOU MAY ALSO LIKE
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Tesla Slump Reflects Growing Skepticism of Company Vision
Tesla CEO Elon Musk said 2019 would bring an affordable electric car built in a new factory in China. But as WSJ’s Tim Higgins reports, investors may be losing confidence in that plan. Photo illustration: Laura Kammermann
The one constant has been a small group of core executives who have counseled Mr. Musk. Mr. Straubel was in that circle.
Mr. Straubel was deeply involved in the development of the battery pack that powered the first Tesla vehicle, the two-seat Roadster. The battery architecture that the team designed, stringing together thousands of battery cells and avoiding them overheating or catching fire, was one of Tesla’s technological breakthroughs.
Mr. Straubel later helped develop the Model S sedan, the company’s bid to compete against mainstream luxury cars, and set up a network of charging stations through which Tesla was able to convince buyers that an electric car could be practicalfor a round trip. He then worked on several battery projects for Tesla.
Mr. Musk praised Mr. Straubel during the analysts call, crediting him for “his fundamental role in creating and building Tesla.”
—George Stahl contributed to this article.
Write to Tim Higgins at [email protected]
7/25/19 The New York Times [email protected]
A Tesla Model 3. Wu Hong/EPA, via Shutterstock
Tesla is losing less, but bad news still abounds
Surging sales of the electric carmaker’s Model 3 vehicle helped the company cut its second-quarter losses. But Tesla isn’t in the clear yet, Neal Boudette of the NYT writes.
Tesla lost $408 million in the second quarter this year, or $2.31 a share, an improvement from the previous quarter’s $702 million loss. Revenue jumped 40 percent quarter over quarter, to $6.3 billion. And the company ended the quarter with $5 billion in cash.
But it still fell short of Wall Street expectations. Analysts had expected Tesla to lose about $1.27 per share and to collect about $6.5 billion in revenue. The company’s shares fell 10 percent in after-hours trading after the financial report.
A longtime executive is stepping down. J.B. Straubel, who had been at the company longer than Elon Musk, will resign as chief technical officer, though he’ll remain an adviser.
And sales of more profitable models are slumping. Combined sales of the Model S sedan and the Model X S.U.V. totaled about 17,700 for the quarter. That’s up 5,600 from the first quarter, but down 10,000 from the same time last year.
What the future holds: Mr. Musk predicts that Tesla will break even in the quarter ending Sept. 30 and turn a profit by year end. But new car models won’t appear until late next year at the earliest, and analysts say the company will need to keep the Model 3’s price lower to maintain sales growth.
http://www.cfo.com/financial-performance/2019/04
April 29, 2019
S&P Questions Tesla’s Profitability Outlook
While the automaker sees a return to profitability in Q3 after the $702 million Q1 loss, S&P is predicting only limited improvement.
S&P isn’t buying Tesla’s profitability outlook for the rest of the year, predicting only limited improvement after the automaker sank back into the red in the first quarter.
Tesla’s $702 million loss was the fourth-worst since it went public in 2010. In the previous two quarters, it had posted back-to-back profits for the first time ever.
Looking ahead, the company said it expected to return to profitability in the third quarter and “significantly reduce our loss” in the second as “the impact of higher deliveries and cost reduction take[s] full effect.”
S&P, however, said profitability improvement for the remainder of 2019 “is likely to be limited,” citing several headwinds in addition to the reduction of the $7,500 federal tax benefit in the U.S. for Tesla buyers.
“We assume ongoing downside risks to profitability from tariffs on Chinese-sourced components, uncertainty around import duties on vehicle deliveries in China, high commodity costs, and lower-priced model variants in the U.S.,” the credit rating agency said in a news release.
Tesla has set a non-GAAP gross margin target of 25% on its Model S, Model X, and Model 3 cars. It is now offering a lower-priced, $35,000 version of the Model 3.
But S&P noted that achieving the margin target will be “highly dependent on customers choosing the more expensive variants (with longer range, superior performance, and full self-driving capabilities). The company will also face intense global competition, as most major automakers plan to launch battery electric vehicles beyond 2019.”
According to S&P, Tesla’s cash position should improve by the end of the year, with free operating cash flow climbing back to break-even from negative $919.5 million in the first quarter. More than $900 million in cash went toward repaying debt earlier this year.
Another $566 million in debt comes due in November, however.
“Given likely headwinds to profitability growth in 2019, this adds some downside risk to the company’s ability to fund its requirements internally on a sustained basis, while keeping a liquidity cushion of $1.5 billion,” S&P warned.
cash flow, credit rating agency, electric vehicles, gross margin, profitability, S&P, Tesla
Seasoned issues-Dilution of ownership of existing owners
5/3/19 The New York Times [email protected]
Philip Cheung for The New York Times
Elon Musk’s latest U-turn
Tesla said yesterday that it would sell about $2 billion in stock and bonds to help fund its operations after a worse-than-expected first quarter.
It’s the first time in two years that Tesla has sold securities to raise money. Elon Musk had said for months that Tesla did not need to raise new capital.
It’s necessary because Tesla hasn’t sold enough cars to cover its operating costs. Sales of the Model 3 tumbled in the first quarter, and the company used over 40 percent of its available cash during that quarter.
The timing is questionable. “It probably would have made more financial sense when Tesla’s stock price was a lot higher,” Peter Eavis of the NYT writes. Tesla’s stock is down a third from its 2018 peak, so it has to sell more shares to raise money — diluting the investments of existing shareholders.
Shares in Tesla jumped 4.3 percent after the announcement. “This is an upside-down reaction,” the research analyst Joseph Osha told the WSJ. “But it tells you the issue of liquidity has been on people’s minds, and this capital raise puts that issue to bed.”
But is it actually enough? Mr. Eavis writes that the sale should cover the production of current models, but not the funding of new vehicles. More production delays could deplete cash, forcing Tesla to go back to the markets again and giving rivals time to eat into its market share.
More: Tesla reportedly expects a shortage of minerals used to create electric vehicle batteries.
Mar 15, 2019 NYTimes.com [email protected]
The new Tesla Model Y. Frederic J. Brown/Agence France-Presse — Getty Images
Say hello to Tesla’s new car, the Model Y
Elon Musk last night unveiled a new seven-seat compact sport-utility vehicle called the Model Y, Neal E. Boudette and Raymond Zhong of the NYT write:
• “The Model Y will be available beginning next year, the company said, at prices ranging from $39,000 to $60,000, depending on the model, with a $2,500 deposit.”
• “A long-range version will be able to drive 300 miles on a single charge, it said, while the $60,000 Performance model will have a top speed of 150 miles per hour.”
• “‘It has the functionality of an S.U.V., but it will ride like a sports car,’ Mr. Musk said. ‘This thing will be really tight in corners.’”
The unveiling “comes as Tesla confronts sales challenges,” Mr. Boudette and Mr. Zhong write. Sales of the Model S and Model X have been flattening, and its push to sell the Model 3 for $35,000 remains shrouded in uncertainty as the company works out how to cut costs to make that pricing possible.
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March 1, 2019 NYTimes.com [email protected]
A Tesla Model 3. David Zalubowski/Associated Press
A $35,000 Model 3 doesn’t come cheap
Elon Musk long promised that Tesla would offer a low-cost Model 3 electric car. Yesterday, he finally made good on that promise — but Tesla is making big sacrifices to offer the vehicle.
What $35,000 gets you is a Model 3 that can cover 220 miles before needing a charge, along with a cheaper interior than higher-priced versions. The new Model 3 is expected to start shipping in two to four weeks.
Tesla expects to sell a lot of them. The announcement led Mr. Musk to raise production estimates to 600,000 cars in 2019.
But it will probably post a loss this quarter. Mr. Musk wouldn’t reveal what kind of margins the company would make on its lowest-priced Model 3. But he admitted, “Given that a lot is happening in Q1, we do not expect to be profitable in the first quarter.”
And the company will change its business model. Tesla will only take orders online, close some of its showrooms and lay off employees to save money. “There’s no other way for us to achieve the savings for this car,” Mr. Musk said.
Shareholders are worried. Tesla’s stock fell 3 percent in after-hours trading. Liam Denning of Bloomberg Opinion argues that’s “because this crowning moment came with more than a hint of a gamble.”
More: Mr. Musk hired a new law firm to defend him against the S.E.C.’s attempt to hold him in contempt of court.
Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Jamie Condliffe in London.
1/4/19 NYTimes.com [email protected]
Tesla Reports Record Output, but Cuts Prices, and Its Shares Plunge
By NEAL E. BOUDETTE
The automaker said sales of the Model 3 sedan increased 13 percent over the previous quarter, but the price cut could signal softening demand.
10/25/18 NYTimes.com [email protected]
Tesla reports its biggest-ever profits
Elon Musk’s automaker caught a much-needed break: Yesterday it reported its first quarterly profit in two years, and its biggest ever. As Neal E. Boudette of the NYT writes, that was helped along by “cost-cutting, spending less on future models, delaying payments to suppliers and, most important, rushing to sell as many cars as possible.”
The good news saw the company’s stocks surge to levels last seen in mid-August when Mr. Musk tried (briefly) to take the company private.
The profit will help stabilize Tesla’s finances. But the question now is whether the automaker can continue this success. It has struggled to deliver cars to customers, and it hasn’t yet rolled out its long-promised $35,000 Model 3. More from Mr. Boudette on what could yet happen:
If sales falter, the company could quickly find itself in a financial squeeze. It has to make bond payments of $230 million in November and $920 million in March. It can use stock for the second payment but only if its share price is above $360. At the same time, Tesla hopes to build a factory in China, which will require hundreds of millions of dollars in capital expenses.
More auto news: In contrast to Tesla, Ford reported lower profits yesterday, as sales fell in Europe and China, and costs rose because of tariffs.
10/3/18 NYTimes.com [email protected]
Tesla Model 3 cars. Mike Blake/Reuters
Defying distraction, Tesla is making way more cars
Despite no shortage of scandal, Elon Musk’s automaker looks to be successfully ramping up car production. It made 80,142 cars in the third quarter, it reported yesterday, 50 percent more than in the second.
Its Model 3 output nearly doubled, into the 50,000-to-55,000 range that Mr. Musk had predicted. The carmaker delivered 83,500 vehicles to customers, 55,840 of which were Model 3s, about three times as many as in the second quarter.
That’s big: The mass-market Model 3 is crucial for Tesla’s future. But as Neal Boudette of the NYT writes, the company still faces many challenges, not least on profitability:
In previous quarters, the company’s costs increased as it made more cars, wiping out any chance at getting into the black. Tesla is expected to report its third-quarter earnings later this month. David Whiston, an analyst at Morningstar, said that Tesla could report a profit for the quarter but that he was not convinced that it would. “They’re making more cars,” he said, “but it’s hard to say if they are making money on every one.”
Still, it’s doing much better than the rest of the American auto market, which had a bad September, with worse to come.
Bonus: Mr. Musk reportedly gave Tesla’s board an ultimatum: Fight the S.E.C., or I quit.
9/29/18 NYTimes.com News Alert [email protected]
BREAKING NEWS
Elon Musk will step down as Tesla’s chairman for 3 years and pay a $20 million fine in an S.E.C. settlement. He will remain as C.E.O.
Saturday, September 29, 2018 5:51 PM EST
Mr. Musk, Tesla’s chief executive, reached a deal with the Securities and Exchange Commission on Saturday to resolve a fraud case.
The S.E.C. announced the deal just two days after it sued Mr. Musk in federal court for misleading investors over his post on Twitter last month that he had “funding secured” for a buyout of the electric-car company.
https://www.wsj.com/articles/some-tesla-suppliers-fret-about-getting-paid-1534793592
Some Tesla Suppliers Fret About Getting Paid
Auto maker’s tumultuous year has concerned some of its suppliers, which are pushed to extend payment terms or asked to give cash back
Assembly robots on the Model 3 assembly line at the Tesla factory in Fremont, Calif. PHOTO: BRIAN MOLYNEAUX FOR THE WALL STREET JOURNAL
439 COMMENTS
By
Tim Higgins,
Marc Vartabedian and
Christina Rogers
Updated Aug. 20, 2018 4:48 p.m. ET
Tesla Inc.’s TSLA -1.63% tumultuous year has fueled concern among some of its suppliers about the auto maker’s financial strength after production of the Model 3 car drained some of its cash, according to industry executives and documents.
A recent survey sent privately by a well-regarded automotive supplier association to top executives found that 18 of 22 respondents believe that Tesla is now a financial risk to their companies, according to the document reviewed by The Wall Street Journal.
Separately, several suppliers in interviews said Tesla has tried to stretch out payments or asked for significant cash back. And in some cases, public records show, small suppliers over the past several months have claimed they failed to get paid for services supplied to Tesla.
Tesla has improved its on-time payments to production-related suppliers to about 95% from 90% last year, according to people familiar with the matter. For nonproduction suppliers, Tesla is paying on time about 80% of the time, the people said.
“We’re not behind because we can’t pay them,” Tesla Chief Executive Elon Musk said in an interview Friday. “It is just because we’re arguing whether the parts are right.”
‘We are definitely not going bankrupt.’
—Tesla Chief Executive Elon Musk
The suppliers collectively represent a sliver of the hundreds of vendors that provide Tesla with components, tooling of manufacturing parts and services such as building construction. But taken together, the survey, interviews and documents show some suppliers are anxious about Tesla’s ability to pay them back.
“Regarding Tesla, any time there is uncertainty in the marketplace, it causes concerns for suppliers,“ said Julie Fream, the chief executive of the Original Equipment Suppliers Association, which sent the survey in the past few weeks—a period that encompassed Tesla’s second-quarter earnings and Mr. Musk’s announcement on Twitter that Tesla had secured funding for a plan to go private. “The current dialogue about Tesla ’going private,’ the well-publicized Model 3 manufacturing ramp-up challenges, as well as recently reported contentious purchasing tactics raise concerns for our members.”
The survey was sent to members of the Original Equipment Suppliers Association’s council, which is made up of lead North American sales executives representing about 100 suppliers. It isn’t known how many exactly were surveyed. Of the 35 that responded, 23 were current or past Tesla suppliers. Some respondents didn’t answer all questions.
In the interview, Mr. Musk and financial chief Deepak Ahuja said Tesla’s financial strength is improving and it remains on track to be cash-flow positive and profitable in the current quarter. They said relations with its suppliers are good.
“If there was any doubt in our suppliers in the first place that should definitely be strongly extinguished, with our commentary and our results and the ramp-up of our production,” Mr. Ahuja said.
All of the respondents to the survey said they wanted to sustain or grow their business with the auto maker, and none wanted to exit.
Delays this year in the production of the Model 3 car drained Tesla’s cash, which fell by $1.13 billion in the first six months of the year to $2.24 billion.
Tesla’s current cash picture looks similar, according to internal company records reviewed by the Journal and to people familiar with the situation.
Tesla’s cash and cash equivalents fell to $1.69 billion as of Aug. 12, according to the records. That was largely because it repaid $500 million of a revolving credit line in July. Tesla plans to tap that same amount again later this quarter, according to the records. That, plus additional cash flow that Tesla anticipates from an increase in vehicle deliveries in the second half of the quarter, is expected to leave it with several hundred million dollars more in cash at the end of September compared with three months earlier, according to the records.
To conserve cash, Tesla has asked some of its capital-equipment suppliers in recent weeks for cash back ranging from 9% to 20% of what the company paid dating back to 2016, according to people familiar with the requests. In one email to a supplier reviewed by the Journal, Tesla asked for help to make “an immediate impact” by providing a rebate on products already purchased.
Tesla has said the rebates applied to less than 10 capital-equipment suppliers. Mr. Ahuja stressed that production-related suppliers—those it depends on to keep cars coming off the assembly line—weren’t asked for rebates, but instead Tesla is seeking to get costs reduced on future work.
Elon Musk’s market-moving tweet about possibly taking Tesla private is just the latest erratic move in a tumultuous year for the CEO. Photo illustration: Heather Seidel/The Wall Street Journal
The recent Original Equipment Suppliers Association survey found that 13 of 23 respondents said Tesla requested a “large” price reduction on current business and/or retroactive rebates.
One parts supplier was asked by Tesla for a 10% reduction on costs across the board going forward, a person familiar with the matter said in an interview. This person said the request was extreme, saying other auto makers typically seek savings of 1% to 2% on individual parts or programs.
The supplier said Tesla indicated it would ask to extend the payment terms to 120 days from 60 days if it didn’t get the price reduction, a length rarer among auto makers than a 90-day term.
Eleven of 23 responding suppliers in the survey said Tesla had asked them to extend payment terms. One tooling supplier was asked in recent weeks to move to a 90-day payment schedule from 60 days, according to a review of a proposed contract and a person familiar with the matter.
Mr. Ahuja said it is normal for auto makers to ask for better terms as the business improves. Tesla has steadily lengthened its payment terms over the past few years, and more U.S. public companies are extending the amount of time they take to pay their bills.
Elon Musk earlier this year PHOTO: LUCY NICHOLSON/REUTERS
One of the suppliers said Tesla has stopped making payments to the company since last spring despite numerous promises. This person said he fears insolvency for his own company if he continues to ship products to Tesla and not get paid.
Public records show 16 companies since October have taken the unusual step of filing mechanic’s liens—or legal claims seeking unpaid compensation—against Tesla claiming bills haven’t been paid for supplies and services. Previously, only four liens had been filed against Tesla in all of 2015 and 2016 combined.
The liens were mostly filed this year in Alameda County, Calif., by small subcontractors against Tesla and contractors of the auto maker, primarily for providing work at the company’s Fremont factory. Some of the suppliers have since been paid, and the total outstanding dollar amount of claims is relatively small, totaling nearly $8 million, according to the documents.
Liens filed by suppliers against auto makers are rare, say automotive industry specialists. “When a customer is having financial issues…suppliers start filing liens to protect their secured position to ensure they are paid,” said Dan Sharkey, a lawyer at Brooks, Wilkins, Sharkey & Turco PLLC who specializes in supply-chain issues.
Mr. Ahuja, Tesla’s CFO, said it would be wrong to see the liens by subcontractors as a sign of financial distress. “It is an issue between the subcontractor and contractor,” he said, adding that it is common practice for subcontractors to name the manufacturer in a lien to create pressure on it.
Tesla shares rose 1% to $308.44. Earlier Monday, JPMorgan Chase & Co. slashed its stock-price target for Tesla to $195 from $308.
The Original Equipment Suppliers Association survey also found that eight of 22 respondents said they are worried about the auto maker filing for bankruptcy. It was conducted between July 26 and Aug. 8, the day after Mr. Musk tweeted about a plan to go private. He has since revealed a deal is far from complete.
In an email on Friday to the Journal, Mr. Musk said, “We are definitely not going bankrupt.”
—Mike Colias contributed to this article.
Write to Tim Higgins at [email protected] and Christina Rogers at [email protected]
Appeared in the August 21, 2018, print edition as ‘Some Suppliers Worry About Tesla.’
8/25/18 NYTimes.com [email protected]
Tesla will remain public, the company said. Elon Musk, the chief executive, had said this month on Twitter he was considering taking it private. Friday, August 24, 2018 11:49 PM EST
8/19/18 NYTimes.com [email protected]
Technology
Elon Musk’s No Good, Very Bad Year
By DAVID GELLES, KATE KELLY and JESSICA SILVER-GREENBERG
“This past year has been the most difficult and painful year of my career,” said Mr. Musk, the head of Tesla. “It was excruciating.”
Investors Betting Against Tesla Made $1 Billion on Friday
By STEPHEN GROCER
Tesla’s stock tumbled 10 percent Friday, generating more than $1 billion in profits for investors betting on a fall in the electric-car maker’s shares.
NYTimes.com [email protected] August 8, 2018
Elon Musk Robyn Beck/Agence France-Presse — Getty Images
The huge questions about taking Tesla private
Shares in the embattled electric carmaker jumped yesterday after the FT reported that Saudi Arabia had bought a stake. Then Elon Musk dropped a bombshell on Twitter: He was considering taking the business private at $420 a share, and funding was “secured.” That would be the biggest ever leveraged buyout, and at a 20 percent premium on where Tesla’s trading.
The audacity of the plan dumbfounded traders and reporters — as did the casual way Mr. Musk announced it.
It makes sense for him. Investors have battered Tesla for missing production targets and failing to turn a profit in the eight years since it went public. One precedent Mr. Musk endorsed was Michael Dell, who revived his computer company after taking it private.
Huge questions remain, though. Does Mr. Musk really have that financing? (CNBC couldn’t find any banks aware of it.) How could Tesla afford the debt payments without free cash flow? Was Mr. Musk just trying to squeeze short sellers? And did his tweet violate securities rules?
Andrew has a question, too: What happens to Tesla if this doesn’t work out? The circus won’t have pleased big investors.
Critics’ corner: The analyst Gene Munster thinks going private could solve Tesla’s problems. Charley Grant of Heard on the Street says it might not even be a real option. And Lex thinks Mr. Musk might tussle with private investors, too.
8/2/18 NYTimes.com [email protected]
Tesla Reports Another Big Loss, but Sees Only Profit Ahead
By STACY COWLEY
Elon Musk, the chief executive, said the electric-car maker was about to turn a corner with output of its mass-market Model 3, buoying company shares.
NYTimes.com [email protected]
Tesla’s big promise: permanent profitability
The automaker announced its second quarter earnings yesterday: another huge loss, as expected, this time of $742 million. Never again, declared the company’s C.E.O., Elon Musk: “Our goal is to be profitable and cash-flow positive for every quarter going forward.” He thinks it’s achievable unless there’s a recession or major economic shock.
Investors celebrated. Tesla’s stock rose about 9 percent in extended trading. (They probably also liked his maturity on the earnings call, and his apology for being rude to analysts last time around.)
But Liam Denning of Bloomberg Opinion wasn’t fully convinced. He points out that Mr. Musk’s plans still involve a vast amount of spending:
Tesla is talking about getting to 10,000 Model 3s a week next year, as well as a new multibillion-dollar Gigafactory in China and, of course, the Model Y, the Semi and all the rest of it down the road.
7/23/18 NYTimes.com [email protected]
Tesla needs cash. It’s asking suppliers for help.
The electric car company has always spent fast. But it has a new short-term idea to deal with that. To judge by a memo reviewed by the WSJ, it’s asking some suppliers for refunds: The automaker’s memo, sent by a global supply manager, described the request as essential to Tesla’s continued operation and characterized it as an investment in the car company to continue the long-term growth between both players.
Tesla reportedly requested a “meaningful” amount of money, though it’s unclear from how many companies.
Was that wise? Dennis Virag, a manufacturing consultant, told the WSJ that big refunds could hurt suppliers enough to risk parts problems.
7/2/18 NYTimes.com [email protected]
Tesla almost met its production goal
Around 5 a.m. Pacific on Sunday, a Tesla Model 3 underwent final quality checks at the company’s Fremont, Calif., factory. The car, Reuters notes, was the 5,000th to be made in just over seven days — meaning the company only just missed its weekly production goal.
Getting to this stage has not been easy, Neal Boudette of the NYT explains. Tesla is building cars on a production line housed in a tent; it has replaced robots that aren’t fast enough with humans; and Elon Musk has been sleeping in the factory, working all hours to streamline production.
In an email to employees, Mr. Musk said that producing 5,000 cars per week meant that Tesla “just became a real car company.” But now comes another challenge: It must reliably maintain production — if not increase it — for years.
More Tesla news: Panasonic says it will consider investing more in Tesla’s Gigafactory.
5/3/18 NYTimes.com [email protected]
About that Tesla earnings call …
CNBC called it “bizarre.” Investors appeared to agree: Tesla’s shares fell over 5 percent in after-hours trading.
Let’s recap the highlights:
• Elon Musk dismissed a question from Sanford Bernstein’s Toni Sacconaghi about capital expenditures and said, “Boring, bonehead questions are not cool.”
• After RBC Capital Markets’s Joe Spak asked about Model 3 reservations, Mr. Musk said that he’d talk to retail investors because analysts’ questions were “so dry.”
• When asked if Tesla should keep its electric car charging network to itself as a strategic asset, Mr. Musk said, “I think moats are lame.”
Liam Denning of Bloomberg Opinion wrote, “Folks, this is not a good sign.” Rebecca Lindland of Kelley Blue Book told CNBC, “Elon, you’ve got to grow up.” And Peter Eavis tweeted this:
What Tesla actually reported: Another loss, and a pledge to reduce its cash burn.
Our question: If Tesla asks Wall Street for money again, what will the answer be?
OZY RESIDENTIAL BRIEF [email protected]
Tesla Loses $2 Billion After Musk Blows Off Analysts
He might want to slam on the brakes. Tesla’s cash reserves fell by $700 million in the first quarter of 2018 — and the company’s shares fell 5 percent yesterday after CEO Elon Musk, on a conference call, cut off analysts’ questions about capital and customers, saying they were “dry.” He instead answered questions from a YouTube host about long term projects like a network of self-driving cars. Tesla announced it’ll shutter its California factory for ten days this quarter, though Musk promised to still meet production goals.
SOURCES: REUTERS, FT (SUB)
Twitter: @elonmusk
“So bankrupt, you can’t believe it.”
Elon Musk finally responded to last week’s bad news with some April Fool’s tweets saying that Tesla had “gone completely and totally bankrupt.”
Elon was found passed out against a Tesla Model 3, surrounded by “Teslaquilla” bottles, the tracks of dried tears still visible on his cheeks.
The context
Analysts have warned of serious financial strains as the electric-car maker struggles to reach production targets for its Model 3.
Tesla has been racing to increase output to help burnish numbers for its earnings report. Its Fremont, Calif., delivery hub was packed on Saturday, and the company has been imploring workers to get production on track, Bloomberg reports.
Its semiautonomous driver-assistance system has also come under scrutiny. It was in use when a driver died in a crash on March 23 — the third fatal crash to have occurred while autopilot was deployed. The company said that the driver had ignored several warnings to put his hands on the steering wheel.
The National Transportation Safety Board said it was “unhappy” that Tesla revealed details about the collision.
The company is also facing a lawsuit over its acquisition of SolarCity: FT Lex looks at the lawsuit’s assertions that Mr. Musk exercises too much influence over Tesla.
http://ww2.cfo.com/capital-markets/2018/03/moodys-cuts-tesla-rating-on-model-3-woes/?utm_campaign=CFOWeekly&utm_source=CFO-email&utm_medium=email&utm_content=CFOWeekly_Friday_2018-3-30&utm_term
Moody’s Cuts Tesla Rating on Model 3 Woes
The downgrade to a B2 rating reflects “the significant shortfall in the production rate” of the Model 3 vehicle and liquidity pressures, Moody’s says.
Matthew Heller
March 27, 2018 | CFO.com | US
Moody’s Investors Service on Tuesday downgraded Tesla’s debt further into junk territory, citing production delays with the Model 3 and warning the company would need more than $2 billion in fresh capital to cover its operating cash burn.
Moody’s said it had lowered Tesla’s bond rating a notch to B3 from B2 to “reflect the significant shortfall in the production rate of the company’s Model 3 electric vehicle.”
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It also noted that the car maker “faces liquidity pressures due to its large negative free cash flow and the pending maturities of convertible bonds ($230 million in November 2018 and $920 million in March 2019).”
Tesla had $3.4 billion in cash at the end of last year. But Moody’s predicted it would need $2 billion this year to cover operating costs as it scales up production of the Model 3. With the $1.2 billion of debt maturing by early next year, and the need for a cash cushion of at least $500 million, Tesla will have to return to the financial markets, the rating agency predicted.
The company raised a more-than-expected $1.8 billion in August for an eight-year junk bond offering to fund accelerated production of the Model 3 sedan. In trading Tuesday, the bond fell to an all-time of 90.8 cents just ahead of the Moody’s announcement.
Tesla shares dropped 8.2% on Tuesday to $279.18. The stock is now down 28% from the record high reached in September and in bear market territory.
“Traders have been betting heavily against the electric car maker’s bonds amid growing worries about the electric car maker’s ability to deliver on its production goals,” CNBC reported.
Tesla has pushed back its target twice for reaching a production rate of 5,000 Model 3s a week, and now predicts it will reach that level by the end of June. It produced only 2,425 Model 3s during the fourth quarter of 2017.
“Prospects for addressing its liquidity requirements (whether equity, convertible notes or debt) will be supported if the company can establish credibility for reaching Model 3 production levels,” Moody’s said.
Tesla forces Elon Musk back down to earth
Here are some of Peter Eavis’s takeaways from the carmaker’s fourth-quarter results:
What was OK: Tesla lost $3.04 per share, less than analysts forecast. Its $3.29 billion of revenue in the fourth quarter was roughly in line with expectations.
What disappointed: Tesla’s gross margin in its auto business, which reveals the profitability of actually producing its cars, came in at 13.8 percent, below the “about 15 percent” it forecast when reporting third-quarter results.
The culprit: The Model 3.
Jan 4, 2018 NYTimes.com [email protected]
Alexandria Sage/Reuters
What happens when Tesla overpromises on Model 3 targets.
Its shares fell 2 percent in after-hours trading yesterday. Here’s why:
In July, Elon Musk predicted that Tesla could build 20,000 Model 3s by December.
In September, analysts projected that Tesla would deliver 15,900 Model 3s in the fourth quarter.
Yesterday, with the analysts in FactSet’s compilation of estimates still expecting 4,100 Model 3s in the quarter, Tesla announced that it had delivered 1,550.
What Tesla says: “During Q4, we made major progress addressing Model 3 production bottlenecks, with our production rate increasing significantly towards the end of the quarter.”
What a critic says: “The premise of the stock’s sky-high valuation has long been of Tesla eventually dominating the auto industry. That notion has hardly ever seemed more fanciful,” writes Charley Grant of Heard on the Street.
https://www.wsj.com/articles/tesla-to-sell-1-5-billion-in-debt-amid-launch-of-model-3-1502103232?utm_source=pdb&utm_medium=email&utm_campaign=08082017&variable=d0b557e21f8e7adc7ca67a2a0de24adf
Tesla to Sell $1.5 Billion in Debt to Fuel Aggressive Expansion
The Silicon Valley auto maker taps debt market to push broader sales of its lower-price Model 3 sedan
Tesla moved the Model 3 into production in July. PHOTO: TESLA/REUTERS
By
Matt Wirz and John D. Stoll
Updated Aug. 7, 2017 10:47 p.m. ET
Tesla Inc. TSLA -0.49% took a step toward financing its transformation from a niche builder of pricey luxury cars to a mass-market rival of Fords and Chevrolets, setting plans to raise $1.5 billion in its first-ever sale of traditional bonds.
The electric-car maker, gearing up for an ambitious expansion with the introduction of its more moderately priced Model 3 sedan, is expected to sell the bonds as early as Friday in a deal underwritten by Goldman Sachs Group Inc. GS 1.36%
The Palo Alto, Calif., company said on Monday that the funds would help push broader sales of its lower-price Model 3 sedan, which the company plans to use to steal a march on mass market rivals such as Ford Motor Co. F -0.27%
Tesla has been a big winner in the stock market—up more than 1,000% in the past five years to a recent market value of $59 billion—and investors said they expect the firm’s efforts to sell junk bonds to succeed, given the market’s thirst for high-yield debt.
At the same time, the auto industry is among the most capital-intensive ventures in business. Tesla posted a loss of $336 million in its most recent quarter despite rising revenue, highlighting the firm’s dependence on raising capital in the financial markets. Tesla is the most valuable U.S. auto maker, but it sells a fraction of the vehicles sold by General Motors Co. , Ford or Fiat Chrysler Automobiles NV—and has yet to report an annual profit after nearly 15 years in business.
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Tesla “burns a lot of cash and it’s not clear they have a sustainable business,” said Bob Schwartz, a bond analyst for AllianceBernstein LP who is debating whether to buy the new debt. The deal is likely to get strong support from investment firms that already own Tesla stock, but “just because it has a huge market cap doesn’t mean it’s a good credit,” he said.
Tesla is rated B-minus by S&P Global, seven notches below the firm’s rating of Ford.
Turning to the bond market allows Tesla Chief Executive Elon Musk to raise money without diluting his ownership or further encumbering corporate assets.
Tesla tapped Goldman to arrange the issue of an eight-year, $1.5 billion bond, and the investment bank is unofficially marketing it to yield 5.25%, a person familiar with the matter said. Goldman is offering prospective investors a tour of the company’s factory on Wednesday to introduce them to the firm, according to an investor.
The sale comes after Tesla repeatedly sold stock and convertible bonds, which can be exchanged for equity later, raising almost $8.5 billion in such deals since 2010, according to Dealogic. The firm also started borrowing against its hard assets in the corporate-loan market in 2015 and has since issued $4.5 billion in loans.
The business case for electric cars remains murky. Gasoline is cheap, driving people to pickups and sport-utility vehicles powered by internal combustion engines, and battery-powered cars are seen as taking too long to charge, expensive and lacking range. Tesla’s cars, to date, have qualified for a $7,500 federal tax credit and Tesla has spent heavily to place so-called fast chargers all over the world.
Recently, Tesla’s Mr. Musk promised to add electric pickup trucks, small SUVs, large trucks and bus-like vehicles. Analysts expect the future ambitions of Tesla, which is already committing a substantial chunk of the company’s revenue to capital expenditures and R&D, to require additional capital increases.
The Model 3 is aimed at more mainstream buyers, with a base price of $35,000. Critics say that car can’t be plagued with the same quality glitches that Model S or X buyers experienced, and that wait times for service or delivery need to be curtailed. Selling hundreds of thousands of Model 3s is seen as necessary because it could bring battery costs closer in line with conventional engines.
An electric car can cost upward of $10,000 more than its conventional counterpart, and analysts say it could take nearly a decade to close the gap. Tesla, building its own batteries, could have disproportionate influence in bringing those costs down due to its deep experience, access to technical experts and considerable scale.
A year ago, Mr. Musk combined Tesla with SolarCity, a home-solar company that he served as chairman of at the time. Combining the two companies was designed to make Tesla a more diverse company focused on batteries, solar energy and automobiles. Other auto makers have scaled back on alternative business lines.
Mr. Musk runs several ventures outside of the car business, including Space Exploration Technologies Corp. He is a major backer of those companies, with shares in some being used as collateral for personal loans used to buy even more stock in the companies he runs.
Bond investors are eager for new deals because there has been little supply in recent months due to a slowdown in mergers and acquisitions, which are usually funded with junk bonds. High-yield companies issued $9 billion of new bonds in July, the lowest amount since January 2016, according to Dealogic, when collapsing oil prices caused junk-debt markets to shut down.
“There hasn’t been much new supply and investors have cash they need to spend,” said Tom O’Reilly, head of non-investment-grade credit for Neuberger Berman Group LLC, who says he won’t participate in the sale. “As a new borrower, that’s going to play to your advantage.”
The bond sale also comes during a summer slowdown in corporate-debt offerings, which some fund managers said could produce favorable terms for Tesla among investors hungry for new bonds. Yet several prospective buyers said they remain leery of lending to a company that has yet to report an annual profit and has one of the lowest-possible credit ratings.
Write to Matt Wirz at [email protected] and John D. Stoll at [email protected]
Appeared in the August 8, 2017, print edition as ‘Tesla Adds Debt In Growth Push
Tesla Model 3
7/29/17 NYTimes.com [email protected]
In Pivotal Moment, Tesla Unveils Its First Mass-Market Sedan
By BILL VLASIC
Elon Musk, Tesla’s chief executive, delivered 30 cars to employees chosen to be the first owners. The electric-car maker faces a challenge in meeting the sizable demand.
https://blogs.wsj.com/moneybeat/2017/05/10/teslas-mysteriously-shrinking-gross-margin/
Tesla’s Mysteriously Shrinking Gross Margin (Updated)
PHOTO: RINGO H.W. CHIU/ASSOCIATED PRESS
By
CHARLEY GRANT
May 10, 2017 10:54 am ET
1 COMMENTS
What does Tesla earn on cars they sell? It depends when you ask.
Tesla reported automotive gross margins of 24.4% in its quarterly filing to the Securities and Exchange Commission on Tuesday evening, according to generally accepted accounting principles. That is good news, considering that the company reported gross margins of 22% in last year’s first quarter.
However, Tesla reported a GAAP automotive gross margin of 27.4% in the headline of its earnings press release just last week.
The suddenly shrinking gross margin didn’t faze shareholders—its shares were, as usual, trading higher on Wednesday. And that makes perfect sense, as far as Tesla is concerned. After all, the stock is up more than 50% over the past twelve months, during which time analyst expectations for this year’s profits have fallen to a loss of $5.16 a share, down from expected profits of $2.60 a share.
It seems the more money Tesla loses, the better.
Update: A Tesla spokesman provided the following statement.
“When we acquired SolarCity and we started doing segment reporting, we adjusted our SEC reporting accordingly, beginning with our 10-K last quarter. As a result, in our 2016 10-K and our 10-Q for Q1 2017, where we conduct segment reporting, we include ‘Services and Other’ in Automotive Gross Margin. Although we do this for segment reporting purposes in our 10-Q, we provide more granularity in our Quarterly Shareholder Letter and the 10-Q income statement by separating ‘Services and Other’ from Automotive so that investors can distinguish between the business of selling new Tesla vehicles and items such as the Daimler powertrain business that have nothing to do with that.”
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https://www.wsj.com/articles/tesla-value-inexplicable-says-autonation-ceo-1491940654
Tesla Value ‘Inexplicable,’ Says AutoNation CEO
Mike Jackson’s remarks come after electric-vehicle maker briefly overtook GM as largest U.S. auto maker
Tesla briefly became the largest U.S. auto maker by market value on Monday. PHOTO: SPENCER PLATT/GETTY IMAGES
By
Mike Spector and
Christina Rogers
April 11, 2017 3:57 p.m. ET
81 COMMENTS
The head of the U.S.’s largest car-dealership chain called Tesla Inc.’s TSLA 2.27% market value “inexplicable,” a day after investors pushed the Silicon Valley auto maker ahead ofGeneral Motors Co. GM 0.15%
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Tesla “is either one of the great Ponzi schemes of all time” or will eventually work out for investors, said AutoNation Inc. AN 0.41% Chief Executive Mike Jackson during an interview at a New York automotive event held by J.D. Power and the National Automobile Dealers Association on Tuesday.
Mr. Jackson, among the auto industry’s more outspoken executives, called Tesla overvalued and GM undervalued at roughly $33 a share, arguing the former will continue to struggle to make money selling electric vehicles despite a loyal following.
Competition would eventually lead to a correction to the Palo Alto, Calif., company’s market value, he said. GM and other auto makers are investing billions of dollars in electric vehicles that are set to hit showrooms in coming years.
A Tesla spokeswoman didn’t immediately respond to a request to comment.
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Tesla briefly leapfrogged GM as the most valuable auto maker in the U.S. on Monday when the company’s stock price surged to $313.73, valuing it at $51.17 billion. Tesla last week also surpassed Ford Motor Co. in market value.
Investor enthusiasm for Tesla has continued throughout the year, pushing shares up more than 40% while Detroit auto makers’ stock prices have been stuck in neutral. That is despite Tesla’s unprofitable operations selling expensive electric cars and sport-utility vehicles, and questions about whether the company can successfully deliver on a mass-market Model 3 car for around $35,000, ramp up production to 500,000 vehicles overall next year and master software enabling self-driving cars.
Mr. Jackson said Tesla Chief Executive Elon Musk deserves accolades for establishing a valued brand that enthusiasts embrace. “You have to tip your hat,” Mr. Jackson said. “He has created a brand that has a strong cultlike following.”
But Mr. Jackson emphasized that Tesla remains unprofitable selling rarefied luxury vehicles that can run $100,000, so the company’s bottom line isn’t likely to get a lift from the more-affordable Model 3. “What would impress me about Tesla? Selling vehicles at a profit,” Mr. Jackson said. He said it wasn’t a good idea to be “giving away vehicles at below the cost of what you have to make them.”
With cheap gasoline, electric vehicles remain a sliver of U.S. sales, while fuel-thirsty trucks and SUVs have surged to a 60% share. “This shift to sport-utility vehicles—it is permanent, it is structural, it is long term, because customers passionately love these vehicles,” Mr. Jackson said.
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Tesla has overtaken Ford in investor value, despite being unprofitable and deeply indebted. WSJ Detroit bureau chief John Stoll explains why on Lunch Break with Tanya Rivero. Photo: Bloomberg
Mr. Jackson said he voted for Democrat Hillary Clinton in the November presidential election, concerned about Donald Trump’s temperament.
He said Mr. Trump’s early days in office have validated his determination. “One minute he’s a 70-year-old, the next minute he’s a petulant 7-year-old,” Mr. Jackson said. He criticized Mr. Trump and congressional Republicans for their recent legislative defeat on health-care overhaul after years of promising to undo the Affordable Care Act passed under President Barack Obama.
But Mr. Jackson painted a positive business landscape under the Trump administration, lauding the president’s efforts to curtail regulations and attempts to boost the economy. He praised the White House’s recent decision to reopen a review of tough emissions standards requiring companies to sell vehicles averaging 54.5 miles a gallon, or 40 mpg in real-world driving, by 2025. Consumers are turning to trucks and SUVs amid cheap gas, and the advent of fracking is likely to help keep fuel prices low, Mr. Jackson said.
—Tim Higgins contributed to this article
Write to Mike Spector at [email protected] and Christina Rogers at [email protected]
Appeared in the Apr. 12, 2017, print edition as ‘AutoNation’s CEO Calls Tesla Overvalued.’
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https://www.wsj.com/articles/tesla-overtakes-gm-to-become-most-valuable-u-s-auto-maker-1491832043
Tesla Rivals GM as the Most Valuable Auto Maker in U.S.
Shares of Elon Musk’s electric-car maker continue their ascent
A Tesla car is displayed in a showroom in New York.Tesla became the largest U.S. auto maker by market value for a time Monday, overtaking General Motors. PHOTO: GETTY IMAGES
By
Tim Higgins
Updated April 10, 2017 5:53 p.m. ET
645 COMMENTS
Silicon Valley overtook the Motor City on Monday.
A surge in Tesla Inc. TSLA -0.75% stock during morning trading gave it the title of largest U.S. auto maker by market value—a feat that would have seemed highly improbable 13 years ago when the electric-car maker based in Palo Alto, Calif., first began tinkering with the idea of making a sports car.
Shares in Tesla rose as high as $313.73 Monday, helped by an upgrade by Piper Jaffray, pushing the company’s market capitalization to $51.17 billion. That high-water mark exceeded Detroit-based General Motors Co., which at its lowest point Monday was worth $50.93 billion. By the market’s close in New York, however, Tesla’s gains had faded, leaving its market value at $50.95 billion compared with GM’s $51.18 billion. Ford Motor Co. F +0.83% closed the day at $44.8 billion.
STEPHANIE STAMM
Market values are calculated using data provided by FactSet, which draws information from public filings.
Still, that Tesla was valued higher than GM underscores the profound change occurring in the global automotive industry as Silicon Valley pursues a vision for transportation—including self-driving cars and vehicles on demand—that could upend century-old competitors. Last week’s disappointing monthly sales results by traditional auto makers served as a further example to investors concerned that the profitable U.S. new-car market is plateauing.
“We’ve built a track record of strong financial performance,” a GM spokeswoman said in an email. “We’ll stay focused on delivering outstanding results and making decisions to deploy capital where it will generate the strongest returns, to enhance shareholder value.”
Tesla declined to comment.
GM is the largest auto maker in the U.S. by market share, making up 17.3% of the sales last year, according to Autodata Corp. Tesla had a 0.2% share, which beat Ferrari and Maserati.
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• Tesla, on a Hot Streak, Passes Ford in Investor Value (April 3)
• Why China Can’t Get Enough of Elon Musk (April 1)
“What’s fun about following this company now is that anything can happen,” Chaim Siegel, an analyst for Investing.com, said in an email about Tesla that aligns with investor sentiment even as the auto maker remains unprofitable and deeply in debt. “The potential is huge. The hopes are huge.”
Even some of Tesla’s most optimistic followers didn’t expect the extent of the recent surge in value. “We’re pretty surprised by the recent run in Tesla’s share price to over $300 so quickly,” Adam Jonas, an analyst for Morgan Stanley, wrote in a note to investors as Tesla’s market cap neared GM’s. He had been targeting a $305 price for Tesla. “Such is the power of technical factors over fundamental drivers,” he said.
Tesla shares are up more than 40% this year, a move that last week led Chief Executive Elon Musk’s company to surpass Ford as the second-largest auto maker. The exuberance comes even as Mr. Musk faces huge challenges in accomplishing all he is claiming to do, including making 500,000 vehicles next year after building just 84,000 last year and creating software that would enable a vehicle to drive itself.
“It’s indicative of the market wanting to pay for potential, including into markets that don’t exist yet in any large size such as [electric vehicles], home energy generation and storage, rather than profits and cash flow today that the large auto makers generate,” said David Whiston, an analyst for Morningstar Research.
Elon Musk, CEO of Tesla, talks about the Model X car at the company’s headquarters in September 2015. PHOTO: ASSOCIATED PRESS
Mr. Musk, who has struggled to bring out new products before, faces the daunting challenge of later this year rolling out the $35,000 Model 3 sedan, the linchpin in his plans to take the company into the mainstream from the rarefied air of selling luxury vehicles.
His acquisition of SolarCity Corp. late last year and removal of the word “Motors” from the company’s official name are part of a broader vision of being able to offer solar panels to generate energy and batteries to store that power at home or the office—all for the benefit of the vehicles being sold. He has also begun shipping vehicles equipped with the hardware he says is needed to make them fully self-driving once the software is completed, aiming to demonstrate the prowess by year-end.
It is a vision that received a strong endorsement late last month with the revelation that Chinese technology company Tencent Holdings Ltd. , best known for China’s largest social network, WeChat, had acquired a 5% stake in Tesla.
“The sooner investors view Tesla as a transportation/infrastructure company rather than just a car company, the more we believe the industry events to come over the next 12 to 18 months will make sense,” Mr. Jonas wrote.
Related Video
Tesla in High Gear: Surpasses Ford Investor Value
Tesla overook Ford in investor value for a time Monday, despite being unprofitable and deeply indebted. WSJ Detroit bureau chief John Stoll explains why on Lunch Break with Tanya Rivero. Photo: Bloomberg
Investors continued to push Tesla shares higher last week after the announcement of a record quarter of vehicle sales. Meanwhile, GM reported a modest U.S. sales gain for March, lifted by truck demand, and said Chief Executive Mary Barra earned $22.6 million in 2016, a decline of 21% from 2015 when she was awarded a sizable retention package. Ms. Barra, at the helm since 2014, has said her goal is to make GM the most valued auto maker in the world.
For GM, Tuesday was particularly painful. The Detroit auto maker, which sold 10 million vehicles last year globally, has been rushing to develop its own self-driving technology, acquiring Cruise Automation last year in a deal that could be worth $1 billion, and investing in ride-hailing service Lyft.
Ms. Barra’s predecessor, Dan Akerson, a former telecommunications executive, was concerned about Tesla’s potential, setting up a team to study how the electric-car maker could threaten GM and challenging his senior executives to war-game-like scenarios.
GM has been especially aggressive in recent years in trying to thwart Tesla, pushing legislation in states in an attempt to block the company’s strategy of selling directly to customers instead of using franchised dealers like the rest of the auto industry has done for generations. In preparing the new Chevrolet Bolt all-electric small car, seen by some as GM’s answer to the Model 3, Ms. Barra said in January 2016 at CES, the annual consumer-electronics show in Las Vegas, that GM’s dealer network gave it a competitive edge. Tesla’s belief in having the ability to control its own stores is prized highly among the company’s senior leaders.
GM’s vision of a world with self-driving cars dates to concepts it introduced at the 1939 New York World’s Fair, but innovation took a back seat among many recent leaders as the company fought to avoid bankruptcy.
Ultimately, GM’s debt load and the 2007-09 recession led to what was then-unthinkable years earlier: GM’s U.S. government-backed bankruptcy-court reorganization in 2009.
Financially, the company has roared back, reporting record profits and developing some of its best vehicles in a generation. But investors have largely yawned. Shares in GM closed at $33.71 on Friday, compared with the company’s postbankruptcy-court initial-public-offering price of $33 in 2010.
“It’s absolutely mind-boggling that we’re even discussing GM and Tesla reaching a parallel,” said Dave Sullivan, an industry analyst with AutoPacific. “It’s not as if they are sitting on some sort of blockbuster drug that isn’t available in generic form. The wide rollout of electric vehicles by Jaguar, Daimler, BMW and Audi is right around the corner.”
Write to Tim Higgins at [email protected]
Appeared in the Apr. 11, 2017, print edition as ‘Tesla Vies to Top GM Value.’
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