No employees, no problem

MARKETS

• U.S. markets: We’re heading into the weekend with a little cautious optimism. Friday Eve brought a third day of gains, but the trade war has made plans to stick around past Memorial Day.
• Immigration: As President Trump revealed his new immigration plan, new data showed that foreign-born workers accounted for 17.5% of all U.S. employees in 2018. That's the highest level in decades.

RIDE-HAILING

It's Been One Week Since Uber Left VC

Back in September, bankers gassed up Uber with one big, flashy number: $120 billion, the value at which Wall Street’s finest thought the ride-hailer could go public. Were we ever so young?

Today, it’s worth about half that.

Now that its “train wreck” of a first week public is mercifully over, it’s clear that Uber’s listing was mostly an exercise in expectation management, the NYT writes.

• A 4% fall from your IPO price is a tough pill to swallow when you were once slated to be the biggest U.S. company to list on an American stock exchange ever.

What happened?

• It was a tough sell. Uber has taken over $10 billion in private funding, meaning some of the most common IPO customers already owned stakes—which were often bought at a lower price earlier on.
• And timing is everything. A month before Uber IPO’d, rival Lyft went public and immediately sank below its offering price. Skepticism spread like mono in ninth grade.

Of course, Uber can’t pass all blame on external factors. It had its own growth concerns as competition in both ride-hailing and food delivery grew more intense.

Zoom out: It really is too soon to know how Uber fares long-term. But one thing is for sure—with Uber ready to move back into Masayoshi Son’s basement, the rest of 2019’s prospective IPO-ers (Postmates, WeWork, Airbnb, etc.) are thinking long and hard about flying the VC coop.

Uber did have one win this week
It doesn’t have employees! A nightmare for us but good news for Uber. The National Labor Relations Board said Tuesday that Uber drivers are independent contractors, not employees.

That means 1) Uber drivers don’t have the right to form a union/bargain collectively and 2) the company likely won’t have to spend gobs of money offering those workers the benefits they’ve been seeking.

RETAIL

Walmart's Fine, Given the Circumstances

Call us e-commerce titans. Walmart (+1.43%) announced Q1 earnings yesterday, and it only took us one day to deliver. Revenue of $123.9 billion fell short of expectations, but $1.13 in earnings per share was a beat. Comp store sales also continued their upward trend, climbing 3.4% for their best first quarter in nine years.

Despite the rosy numbers, CFO Brett Biggs warned of trouble ahead: “Increased tariffs will increase prices for customers,” he said. We’re pretty sure he meant the tariff hike on Chinese imports levied last Friday and President Trump’s threats of even more on Monday.

• Biggs didn’t specify which items will get pricier. And while Walmart is relatively insulated from the trade war—most of its grocery merchandise comes from the U.S. and South America—about 26% of its inventory comes from China, according to a UBS estimate.

The sincerest form of flattery: Bloomberg notes other discount retailers are watching to take their tariff-response cues from Walmart’s example. After all, it is the world’s largest retailer.

PRIVATE EQUITY

Nestlé Clears Up

Nestlé has locked into exclusive talks to sell its skincare business, which includes high schooler-approved Cetaphil and Kendall Jenner-approved Proactiv, to a group of private equity players for about $10.1 billion.

This is zit-right-before-prom big. If the deal closes, it’ll be Europe’s second biggest private equity deal since the financial crisis and Nestlé’s largest divestment in over a decade.

• From the outside looking in, this fits into a broader trend of skincare deals—just a few days ago Beiersdorf said it would buy Coppertone for SPF $550 million.
• And from the inside looking out? Well, when you sell everything from Lean Cuisine to Purina, picking a lane can kickstart sluggish growth. CEO Mark Schneider has picked a few lanes: coffee, pet care, and consumer health.

And selling skincare looks like the path of least resistance (and most profit). After revamping the unit over the last two years, Nestlé is about to sell it for 21x the division’s earnings. The typical multiple for this kind of deal? 17x.

TECH

Huawei Is President Trump’s Punching Bag

On Wednesday night, the Trump administration started the process of 1) blocking Huawei from selling its tech to the U.S. and 2) blacklisting the company from buying U.S. components. The announcements are the most aggressive action to be taken against Huawei, a company the White House considers a national security threat.

But what the government calls a national security threat some U.S. companies call an important customer:

• Huawei spent $11 billion of its $70 billion component procurement budget on U.S. parts last year.
• With 4.4% global market share, it was the third biggest purchaser of semiconductors in the world in 2018, per Gartner.

So which U.S. companies stand to lose out? Qualcomm, Broadcom, Intel, and Oracle.

Zoom out: Nothing’s set in stone, but that hasn't stopped analysts from coming up with some colorful ways of describing the consequences.

• “The Trump administration action is a grave escalation with China”—Eurasia Group.
• Putting Huawei on the blacklist is “the nuclear option”—Think tank New America.

QUIZ

Quizz Beatz

Sexier than a Boston accent. More intense than a Flywheel class. Functions at 200% capacity. It’s the Brew’s Weekly News Quiz.

1. Fill in the blank: Close to 75% of the world’s ______ comes from Qatar, Wyoming, and Texas.

2. Who said this? “Remember that the Facebook and Amazon post-IPO trading was incredibly difficult for those companies. And look at how they have delivered since.”

3. What percentage of Apple’s “services” business revenue comes from its App Store sales? (Expecting 100% correct answers since we warned you about this one.)

4. Which city just became the first in the U.S. to ban police and other city agencies from using facial recognition?

5. These media giants formed Hulu as a way for consumers to watch last night’s TV online.

• NBC and CBS
• Fox and Disney
• NBC and Fox
• Disney and CBS

6. WeWork is building its own $2.9 billion investment firm to snatch up stakes in buildings where it’ll be a main tenant. What is the fund called?

Answers: 1) Helium 2) Uber CEO Dara Khosrowshahi 3) about 35% 4) San Francisco 5) NBC and Fox 6) ARK

WHAT ELSE IS BREWING

• Pinterest (-15.26% after hours) released its first earnings as a public company, and it wasn’t pretty—losses way outpaced estimates despite growth in international markets.
• Nvidia (+6.12% after hours) reported top- and bottom-line beats despite the noticeable absence of cryptocurrency-related revenue on its balance sheet.
• Facebook (+0.39%) has banned an Israeli company that was allegedly running an influence campaign to disrupt elections in several countries.
• Angela Ahrendts, former retail chief at Apple and everything chief at Burberry, is joining Airbnb’s board.
• The European Commission has fined five banks a combined $1.2 billion for their roles in foreign exchange trading cartels.

BREAKROOM

Friday Puzzle
This week, we’re dialing up a word puzzle from the puzzle lord himself, Will Shortz:

Take the letters S Y T O Y. Add the same letter of the alphabet six times to complete a familiar phrase. What is it?

Breakroom Answers