Welcome to Wharton

MARKETS

• Markets: Stocks dropped again, but the damage wasn’t nearly as bad as Monday and Tuesday. The 10-year Treasury yield hit another record low.
• Virus: "The risk to the American people remains very low," President Trump said at a news conference last night. He appointed Vice President Mike Pence to lead the U.S. response.
• Housing: U.S. new home sales rose 7.9% in January, the fastest pace since before the recession. The median price of a new house in America was $348,200.

FINTECH

Do You Believe in Klarna?

Yesterday, hotshot Swedish fintech startup Klarna said it suffered a $93 million loss in 2019.

Why exactly is it news that a tech startup lost money? No, we aren’t getting kickbacks from Klarna’s competitors to lead with this story. It’s surprising because Klarna had been profitable every year since its 2005 founding.

Back to the beginning

Klarna allows people to pay for online purchases in mostly interest-free, periodic installments (the "buy now, pay later" model). It generates revenue by charging retailers to use the service and by charging interest on late-paying customers.

Those retail partnerships have served the company well. Klarna is tied with banking app Revolut for Europe’s MVFS—most valuable fintech startup.

• Klarna made about $11 million in profit in 2018 and processed close to half of Sweden’s online payments.
• It was valued at $5.5 billion last August after a $460 million fundraise. It’s backed by institutional heavyweights like Sequoia Capital and Snoop Dogg.

So...what happened?

Klarna got tired of functional public transportation and hopped the Atlantic. While it had been dabbling in the U.S. market since 2015, it really slammed the pedal down last year.

• Klarna opened a pricey tech hub in Berlin and also ventured into Australia and New Zealand.
• The company said first-time users in new markets were less reliable about making payments, which drove losses.

Zoom out: Klarna CEO Sebastian Siemiatkowski suggested last year that a public offering was on the horizon. Because that would likely happen in the U.S., it needs a solid foothold stateside before we drag the IPO tailgate equipment out of storage.

Klarna should be fine

Its top line grew 31% in 2019, and it added 75,000 new merchants to its stable of more than 200,000.

• Plus, the volume of goods sold through Klarna jumped 32% to over $35 billion.

Bottom line: No pain, no gain. Siemiatkowski told the FT last year he was laser-focused on growth. Looks like he spent some money to get there.

INTERNATIONAL

Hong Kong Tries to Lighten the Mood With $$$

To aid a population “overwhelmed by a heavy atmosphere,” Hong Kong’s government proposed a payment of HK$10,000 ($1,284) to every permanent city resident over 18. Your move, Andrew Yang.

The payment, which is part of an unusually bold annual budget proposal, is a desperate measure from a government that’s 1) confronting a record deficit and 2) trying to resuscitate its economy.

• Coronavirus (HK confirmed case count yesterday: 89) has dead-legged retail and tourism spending.
• And last year’s widespread protests dented Hong Kong’s reputation as Asia’s busiest and largest financial center. HK’s economy contracted 1.2% in 2019 in its first annual recession since the financial crisis.

Jury’s still out on whether the payment will work, though. It might breathe life into the economy, if recipients spend the cash in HK and spend it quickly (two big ifs). One Natixis economist called the program “untargeted and regressive.”

EDUCATION

Welcome to Wharton

UPenn’s Wharton School has for decades been the premier destination for Brads and Chads looking to spend two years in Philly and never return. But now, it’s home to a new kind of leader.

Wharton announced that current Emory University business school head Erika James will take over on July 1 as its next dean. She’ll be the first woman and first person of color to hold the post in Wharton’s 139 years.

Why it matters: As the world’s first collegiate business school, Wharton has earned its blue checkmark—you don’t see us making nearly as many jokes about b-schools like Fuqua or Tuck or Darden. So when Wharton makes an effort to practice what it teaches in MGMT 624: Leading Diversity in Organizations, other programs pay attention.

James will have plenty on her to-do list. Applications to U.S. MBA programs have dropped for five straight years, and at Wharton, apps to its two-year MBA program declined about 5% last year. Because with a job market this good...you’d think twice about taking two years off to hang out at Smoke's.

INVESTING

The Subreddit Moving Markets

Coronavirus isn’t the only wrinkle in the stock market this year. Bloomberg Businessweek reports on r/wallstreetbets, the 900,000-user subreddit that’s likely behind recent head-scratching stock rallies from Virgin Galactic and fuel cell company Plug Power.

What’s happening: Chatty traders have used the Reddit forum to take advantage of options contracts—trades that allow you to bet on a stock rising or falling without actually buying the underlying shares. /WSB users have tried to push up individual stock prices by buying bullish options contracts known as “calls.”

• And they’re actually moving the needle. For some stocks, bullish options bets have outnumbered bearish ones—that’s not normally how the options market works.

Flashback: Something similar was happening in chat rooms in the late 1990s, when day traders would hype up stocks through message boards. Of course, those Gen X-ers didn’t have to worry about nosy algorithms combing the internet for market-moving information.

Bottom line: /WSB shows small investors are putting their stamp on the stock market.

C-SUITE

How to Become a Corporate Exec: Batting Practice

Forget 30 years of experience and an MBA—the most direct path to the c-suite is talking more like Kenny Powers. The WSJ’s Telis Demos found that analysts often ask execs “What inning are you in?” on conference calls to gauge progress. And then he rounded up the best quotes.

• When asked this month about cloud adoption rates, Amazon Web Services CEO and little league third base coach Andrew Jassy replied, “I would say that maybe two outs, bottom of the first, runner is on board. Runs in on both sides, though.”
• Don’t ask Union Pacific COO Jim Vena about baseball when it’s football season. In January he said, “I started on the 20-yard line, 25-yard line, and I don’t think I’ve hit the middle of the field yet” about the company’s precision scheduling.
• David Gitlin, CEO of Carrier in February: “Even though Willis Carrier invented modern air conditioning in 1902, we’re viewing this as the first inning.”
• But always remember to do your research before asking a sports question. On Tuesday, JPMorgan Chase’s COO wondered aloud, “How many innings are there anyway?” He was born in Britain.

WHAT ELSE IS BREWING

• At least seven people were killed when a shooter opened fire on Molson Coors's Milwaukee campus yesterday afternoon, per the Milwaukee Journal Sentinel.
• Panasonic and Tesla are no longer working together on solar
• Facial recognition startup Clearview AI, which contracts with law enforcement, reportedly told customers an intruder stole its entire client list.
• Microsoft warned it probably won't meet the quarterly revenue guidance it previously offered for
• More Personal Computing segment—the home of Windows—because of the coronavirus.
• Nestlé told its employees to stop traveling for business reasons until the middle of March.
• Peugeot maker PSA Group said it tallied record profits last year but lost $760 million in China...before the coronavirus outbreak happened.

GUESS THE LOGO

The logos for both Microsoft and Google contain four main colors: blue, green, yellow, and red. We can think of two other large tech companies that also feature those same four colors in their logos. Can you name them?

GUESS THE LOGO