Cookin' with gas

QUOTE OF THE DAY

We’ve got some momentum."

Tim Cook. Apple Earnings. You gotta check it out.

Market Snapshot

  • The Dow finished at another record, just shy of 22k.
  • The S&P and Nasdaq ended up after a strong earnings day.
  • Treasury prices edged up following poor economic data.
  • The pound climbed to an 11-month high, boosted by manufacturing.


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The “Hard Fork”

That’s the intricate process of splitting Bitcoin into two. And it just happened.

The first coin will remain Bitcoin, while the new currency will be called Bitcoin Cash.

Let’s refresh. Bitcoin is an electronic currency that offers peer-to-peer online payments. Like handing someone a dollar for a service, I pay you and you pay me.

Peel back a layer and we have these people called "miners." A miner acts as the cryptocurrency police, preventing “funny business” with each transaction and getting paid a fee to do so.

Once a miner gives a transaction the green light, they store it in a block, a group of transactions that link to form one, long "blockchain." It’s sort of like an accountant keeping a ledger.

But, here’s the thing

Bitcoin is pretty old. Like a decade old.

And like any old technology, sometimes it needs to be upgraded. Consider this:

Currently, Bitcoin blocks can process 1MB every ten minutes (or seven transactions a second), while payment processors like Visa push through 2,000 transactions a second.

And before the Bitcoin craze began, 1MB was enough to get the job done. But, now that grandma Doris is sitting in her rocking chair slinging around bitcoin, that performance won’t fly.

Cue the split

If Bitcoin ever wants to be a widely-accepted method of payment, it’ll need the blessing of governments and institutions. And for that to happen, processing transactions must be seamless.

The solution is Bitcoin Cash. Bitcoin Cash, will now be able to process 8MB of transactions per block. Think of it like the jump from 3G to LTE—it’s a big deal.

Still, while the split is complete, Bitcoin Cash has a LONG way to go and a lot of opponents standing in its way (but that’s for another time).

Cha-ching

If you were worried about Apple, don’t be. The nearly $800 billion tech giant was cooking with gas in Q3.

Sales rose 7.2% to $45.4 billion, profit jumped 12% to $8.7 billion and Tim Cook and Siri have finally eloped.

But seriously, everything seems to be going well.

Apple sold 41 million iPhones this quarter (surpassing 1.2 billion total), despite concerns of pullback in anticipation of the iPhone 8.

iPads also held their own, as schools and businesses boosted unit sales 15% to 11.4 million units—the first jump in 14 quarters.

And possibly Apple’s biggest win—its services unit (Apple Pay, App Store, Apple Music). Sales rose 22% year-over-year to $7.2 billion, earning the division a phantom spot on the Fortune 100 roster.

Tim and Siri’s honeymoon was almost perfect, but something always goes wrong—China.

Government regulations and heightened competition from Huawei and Xiaomi drove Chinese sales 10% lower year-over-year.

Unfortunate? Yes. But, there’s always this kicker.

Apple still sits on a $261.5 billion pile of cash. It could swallow Netflix for fun and not look back. Or even three Netflixs.

Trolling Uber

Didi Chuxing, Uber’s Chinese archnemesis, is on the troll once again.

Just last week Didi and Softbank upped the ante against Uber by investing $2 billion in Southeast Asia’s ride-hailing business, Grab.

Now, Didi is investing in one of Uber’s European and African rivals, Taxify. The stake in the taxi service is not yet clear, but the stakes are crystal clear.

Let’s check the stat sheet:

Didi now has holdings in Southeast Asia (Grab), India (Ola), North America (Lyft), Europe and Africa (Taxify) and South America (99).

And if ride-hailing ever finds its way to the North Pole, you better believe Didi will be all over it. It’s time for Uber to step up its game. But first...maybe start by finding a CEO.

Protect This House

Spieth and Curry might keep winning, but Under Armour keeps losing. And after the company posted its first quarterly loss on Tuesday, Kevin Plank is going back to the drawing board.

If closing 33 factory outlets and 23 Under Armour-branded stores weren’t enough, the company will also be letting 2% of its employees go, to free up some cap space. What will it go towards?

Better customization and shortening products’ lead time to market. Hmm, this feels oddly like Nike’s Consumer Direct Offense plan…

That’s because it is practically the same thing.

With more niche brands sprouting up left and right, like every butt’s favorite brand Lululemon, Nike and Under Armour must divert attention to specific segments of a massive sports apparel industry ($165 billion to be exact).

Under Armour isn’t reinventing the wheel here. Focus will be placed on what got UA here in the first place: men’s/women’s training, running and lifestyle gear.

And if you’re still scratching your head saying "things can’t be that bad...they still have Tom and Gisele." Fair point. But, consider: for the last six-and-a-half years, Under Armour sales have grown 20% year-over-year—that number now sits at 11%.

Tell Me More…

  • Microsoft is now selling "mixed reality" headsets.
  • Lyft is partnering with Amtrak to offer first and last mile ride bookings.
  • Sprint is drawing closer to a merger decision with either Charter or T-Mobile.
  • Impossible Foods raised $75 million for its plant-based burgers.
Economic Calendar

  • Monday     Earnings: Panasonic (+/-), Pandora (+)
  •                     Economic Events: Pending Home Sales (+)

  • Tuesday    Earnings: Allstate (+), Apple (+), Shopify (+), Simon Property Group (+), Sprint (+), Steve Madden (+), Thomson Reuters (+), Under Armour (+), Xerox (+)
  •                   Economic Events: Auto Sales (-), Construction (-), Core PCE (+), Personal Income (+/-)

  • Wednesday    Earnings: 3D Systems, AIG, Cheesecake Factory, JLL, Plug Power, Square, Tesla, Time Warner, Adidas
  •                         Economic Events: Crude Inventories, ADP Employment Change, MBA Mortgage Applications

  • Thursday   Earnings: Activision Blizzard, Aetna, Berkshire Hathaway, Duke Energy, Etsy, GrubHub, Kellogg, Kraft Heinz, Paramount, Shake Shack, Toyota, Yelp, Viacom, Yum!
  •                    Economic Events: Natural Gas Inventories, Factory Orders, Initial Claims

  • Friday       Earnings: No Events Today
  •                  Economic Events: Unemployment Rate, Nonfarm Payrolls, Trade Balance

Gimme 3... Financial Concepts #3

We keep emailing Warren Buffett to help explain the financial concepts each week, but so far no luck. For now, here’s Alex with his fidget spinners yet again.

Return on Equity: A measure of how effectively a company takes money from investors and uses it to generate profit. The higher the ROE the better. It is measured by Net Income over Shareholders’ Equity.

Imagine this: Alex Co. is a public company that raised $50 from shareholders. This year, the firm’s earnings skyrocketed to $10. Its ROE would be 20%, meaning for every dollar invested, 20% of that is turned into additional assets.

Inventory Turnover: Think of inventory turnover as how effectively a company is selling its goods over a certain period. A "low inventory turnover" typically means the company is selling its goods less frequently and has excess inventory. “High inventory turnover” refers to just the opposite. It is calculated by Sales over Average Inventory.

Just think: Alex starts selling spinners out of his garage. Sales are booming and he needs to replenish his stock of spinners every week. (That’s a high inventory turnover—Alex is smilin’). However, if demand is hurting and Alex only restocks every month due to leftover inventory, he’ll have a low turnover rate. Sad Alex.

Interest Coverage Ratio: Interest coverage is a company’s ability to pay interest on its debt. The higher the ratio the more likely it can pay off the debt. The lower the ratio, well, you know how it goes. It is measured by EBIT over Interest Payment.

Let’s say: Alex borrowed $1,000 to load up on a year’s worth of fidget spinners. Each month, he must pay 3% interest on this debt until it reaches maturity. After month one, Alex made $100 off selling fidget spinners. Take out the costs of doing business, and he is left with $50. Alex’s Interest Coverage Ratio is 1.7x ($50/$30). Said differently, he can cover 1.7x his monthly interest payment.

Disclaimer: These definitions are just a foundation. We encourage you to dive deeper! If you would like to learn more about each of these concepts follow along here: (Return on Equity, Inventory Turnover, Interest Coverage Ratio)

Question of the Day

On a lake, there is a patch of lily pads. Every day the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half the lake?

(Give up?)

Who Am I?

I am Chairman and CEO of the largest casino company in America.

My company also constructed casino resorts in Macau and Singapore.

In the late 1970s, I founded COMDEX, the premier computer trade show of its decade.

I was the largest donor to Trump’s Presidential campaign at $25 million in donations.

(Got any guesses?)

Stat of the Day

1.8 million

The shortage of cyber security professionals by 2022. With the proliferation of cyber security threats, companies are starting to appreciate the importance of digital security and are hiring experts to keep their data safe.

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