Game of phones

QUOTE OF THE DAY

“We have to prime the pump...have you heard that expression used before? Because I haven’t heard it…I came up with it a couple of days ago” — President Donald Trump, attempting to explain economics to The Economist. (Surprise: he did not coin the phrase “prime the pump.”)

Ticker

MARKET CORNER

Market Snapshot

Retail woes dragged down U.S. stocks Thursday (more on that in a bit) after record highs earlier this week. Oil ended the week relatively flat.
Positive economic data like a spike in the producer-price index and lower unemployment numbers brought Treasury yields back from earlier lows.

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Walkin’ in a 5G Wonderland

Verizon (-0.78%) is buying little-known wireless company Straight Path Communications (-20.41%) for $3.1 billion in cash, more than double what rival AT&T (-0.03%) offered to pay last month. Wait...what?

Let’s unpack: two months ago, the Virginia-based telecom company was only worth $400 million. One fat fine from the FCC later, and Straight Path was in the middle of a hot bidding war for its 5G airwaves—launching the stock 500%.

Sadly, investors' dreams were cut short when the deal closed at $184 per share (or an equity value of $2.3 billion)—$50 less than the sweet premium seen during Wednesday’s peak. Oops.

What is 5G and why is it worth so much?

You know that little icon at the top of your phone screen? It probably says 4G or LTE (same thing) right now. Maybe even 3G if you’re really old-school.

Well, 5G is simply the next generation of wireless broadband—and Straight Path happens to own more of those lightning-fast airwaves than anyone else...hence the sudden demand.

Not only does 5G pack 10 times the speed, (downloading a movie in just a few seconds? yes please), but it can also handle way more devices on the network (100 billion to be exact). That’s super important now that a single room could have a connected TV, speaker, phone, lamp, kettle—anything. We like to call that "conversation" between your toaster and television the Internet of Things.

Verizon is already trialing a lite version in some cities as it races T-Mobile (-0.29%)—and if this acquisition proves anything, it’s that Verizon is willing to cough up the cash to win.

And the elephant in the room––where’s the $3.1 billion going?

The feds are taking home 20%—bummer. But 70% of Straight Path is owned by Howard Jonas, who’s getting pretty good at this M&A thing.

Back in 2000, he sold a chunk of his telecom company called Net2Phone to AT&T for $1.1 billion in cash—between that, and some...interesting...side hustles (Star Trek comics, "1-800-SCREW-ATT," you name it) his other five companies, he’ll be doing just fine.

Wells Fargo Faces the Fire

Looking to make a comeback from last year’s sales scandal, Wells Fargo (-1.79%) will cut overhead costs by $4 billion over the next two years, double its original plan, by closing 450 branches.

After paying a $190 million fine for opening accounts (2 million, to be precise) without customers’ knowledge or permission, the San Francisco-based bank's efficiency ratio has soared to over 60%. As pissed off customers close their accounts, that number only gets higher (not the goal).

Wells Fargo’s stock has lagged behind competitors like JPMorgan (-0.31%) and Bank of America (-0.33%) by about 30%...not great. Its biggest cheerleader (and shareholder), Warren Buffett, is hoping it can claw back to the top.

Retail Is Feeling the Heat

The painful saga for the retail industry continued yesterday as three major chains posted disappointed earnings (again). It's clear the growing trend of consumers making the switch to online shopping is taking its toll.

What you need to know:

Macy’s (-17.01%) stock hit a nearly six-year low after the department store reported a hefty 38% drop in quarterly profit and 4.6% fall in quarterly same-store sales. Reminder––in late 2016, Macy’s announced plans to close 100 stores. Might be more where that came from.
Kohl’s (-7.84%) bad, but better (than Macy’s)––profit was surprisingly 14% higher. The key? Better inventory management and the CEO’s "remodeling" project. BUT, the discount chain’s same store sales were still down for the fifth straight quarter...
Nordstrom (-3.92% after hours) also posted a miss after the bell, as a growing e-commerce business (10.9% increase in sales) couldn’t hold off brick-and-mortar from forcing same store sales 0.8% lower.

Vice Produces a Deal

Eternally hip documentary maker Vice Media is in talks with San Francisco private equity firm TPG about a $500 million investment that would value Shane Smith’s Brooklyn-based behemoth at $5.25 billion—nearly double the value of the New York Times (a true sign of the times if we’ve ever seen one).

Vice began its global conquest in 2013 with a $70 million investment from 20th Century Fox, and launched a prime time HBO show shortly after. As the streaming wars heat up, Vice will need all the cash it can get to keep pumping out reports on Russian heroin and vodka-fuelled train travels.

What Else Is Happening…

Laptops could soon be banned on all flights from Europe. Better buy a good book
Uber should be regulated like any other taxi service, a European court said
Realtors are suing Zillow (+0.30%); They claim its ‘Zestimate’ tool needs a license
President Trump ordered a review of the country’s cybersecurity defenses
AIG’s (+0.68%) new CEO will be Brian Duperreault, a former lietenant to outgoing exec Greenberg

Economic Calendar

Monday: Marriott (+), Pandora (-) Earnings
Tuesday: Electronic Arts (+), News Corp (+), Tripadvisor (-), Valeant Pharmaceuticals (+), Walt Disney (-), Yelp (-) Earnings; Job Openings and Labor Turnover (+)
Wednesday: Snap (-), Symantec (-), Time (-), Toyota (-), Whole Foods (+) Earnings; Treasury Budget (+)
Thursday: Kohl’s (-), Macy’s (-), Nordstrom (-) Earnings; Producer Price Index (+), Weekly Jobless Claims (+)
Friday: Albertsons, Baltia Air Lines, JCPenney Earnings; Consumer Price Index; April Retail Sales

WATER COOLER

J. Peterman Is Back

Except this time he’s not just harassing Julia Louis-Dreyfus, he’s hawking an IPO. Seinfeld actor John O'Hurley has been spotted on daytime TV plugging a company called YayYo. It’s a site that wants to help you compare a cab fare with Uber, Lyft and more (like Kayak for ride-hailing), but first it needs some capital:

Here’s the (very odd) scoop:

YayYo’s offering is a public offering, yes, but it’s certainly no Snapchat or Twilio. It’s only possible thanks to the 2012 JOBS Act, which lets smaller companies pitch offerings on TV and raise up to $50 million from anyone with a remote.
It’s basically like Kickstarter, but with bigger stakes. Phoenix-based Elio Motors (-5.43%) successfully used the model to produce more of its odd, three-wheeled contraptions.
But wait...it gets weirder: ever heard of an initial coin offering? Neither had we. Instead of taking cash from investors, firms will issue their own cryptocurrency that can be bought by anyone—and sold at any time.

THE BREAKROOM

It’s Quiz Time!

Think you remember the most important stories from the week? Take the weekly Brew quiz and find out. As usual, we’ll randomly select one person from all the correct responses to get a bundle of Brew swag.

Interview Question of the Day

How do you apply the operators +, -, /, () to 3, 3, 8, 8 to get 24?

Hint: you can use them twice, three times, or not at all.

(Answer)

Company of the Day

Some of you more thorough Brew readers may have noticed an odd company listed in the Economic Calendar for today: Baltia Air Lines. We’re not surprised if you’ve never heard of the strange Russian carrier, much less flown it before.

That’s because the JFK-based airline has never flown any passengers in 27 years. However, the Baltic company filed paperwork this week to rebrand as U.S. Global and launch direct flights to Russia from an upstate New York airport. Good luck with that.

Stat of the Day

$1.3 billion — That’s how much revenue Charles Schultz’s Peanuts comics generated in 2015. DHX Media, which also owns the Teletubbies, is buying the division that owns Snoopy and the gang for $345 million. Holy intellectual property, Batman.